RBI’s Big Step To Save The Rupee From Falling Further

RBI’s big step to save the rupee from falling further and sell so many billion dollars.

Reserve Bank of India (RBI) has taken major action to save the creditworthiness of the Indian Rupee. The Reserve Bank has put in sales tax of $5 billion.

Through this, the sharp fall in the value of the rupee has been stopped. Analysts have considered this as the effective intervention of the central bank.

To keep the rupee in a stable orbit, RBI is known to enter the markets to sell or buy dollars from intermediaries.

However, continued selling of FIIs in the secondary market may trigger the decline again.

Fears of the Omicron nature of COVID-19 coupled with rising vigilance over US Fed tapering measures recently weighed on investor sentiments.

Tighter liquidity controls, especially in the US, are preventing global investors from withdrawing money from emerging markets like India.

RBI’s big step to save the rupee: On Wednesday, the rupee had closed on the greenback at 75.55.

Last week, the rupee had weakened significantly on a weekly basis and closed at $ 76.09. The Indian rupee has stabilized this week after hitting its lowest level in 20 months.

Sajal Gupta, Head of Forex and Rates at Edelweiss Securities said that the recent depreciation in the rupee seems to have started as an overreaction due to the Omicron pattern.

When the rupee had hit a low of 76.31 last week, RBI intervened in the market. However, RBI does not expect further action as the flow picture looks quite favorable in the medium term.

The rupee has been under pressure recently after the RBI refrained from raising the reverse repo rate and the Federal Reserve decided to increase the pace of its tapering.

On the domestic front, FIIs have been net sellers in recent times and the currency’s limited weakness suggests that RBI has actively intervened to contain volatility.

Gaurang Somaiya, Forex, and Bullion Analyst, Motilal Oswal Financial Services, said that there could be a suspected RBI intervention worth $5 billion.

The market participants expect the current market volatility to continue till the Omicron variant Let the fear not subside.

The latest data released by the RBI shows that the current reserve amount is over $635 billion.

According to Dilip Parmar, Research Analyst, HDFC Securities, the RBI started looking at the liquidity and inflation aspect after the FOMC meeting and since the beginning of the week.

They may have intervened heavily by selling dollars to contain and could start imported inflation.

In the next few days, we may see the rupee fluctuate between 75.10 to 75.70 in the absence of fresh global cues and the selling rate of foreign institutions may come down before the Christmas holiday.