Rupee rebounds nearly 1% after RBI moves to curb speculative trades

Kolkata: The rupee bounced back nearly 100 paise, or 1% Monday to 95.77 a dollar from the near all-time low following the Reserve Bank of India's measures to curb speculative currency trades.

The currency opened the day at 95.76 a dollar against the previous close of 96.73 and gained to 95.5850 as the separate window for meeting dollar demand from state-owned oil marketing companies eased pressure on the spot rupee.

However, corporates and importers were seen buying dollars at lower levels, pushing the currency again to 95.9850.


RBI was said to have intervened to prevent the rupee from breaching the psychological 96 mark.

"The RBI measures may divert a significant share of current account dollar demand away from the market but will not eliminate underlying demand," said Madhavi Arora, lead economist with Emkay Global Financial Services in a note.

The regulator announced a slew of measures to support the falling rupee, which depreciated about 7% this year as elevated crude oil prices, a strong dollar index and sustained foreign capital outflows kept the local currency under pressure. The rupee's all time low was 96.96 seen on May 20.

"Ultimately, these are tactical fixes, not structural solutions. If global conditions remain adverse, defending the rupee will entail increasingly costly policy trade-offs, requiring a broader response spanning exchange-rate flexibility, liquidity and monetary policy, and structural reforms," Arora said.

Brent still hovers above $100 a barrel, and US Treasury yields above 5.2% kept the dollar firm.


Meanwhile, the RBI's special window will drain the forex stockpile, people aware said.

"We reckon that these oil companies could be buying forex of $5.5-6.5 billion a month, depending on their own earnings on exports and proportion where other currencies are used to settle contracts," Bank of Baroda chief economist Madan Sabnavis said.

Emkay's Arora estimated their monthly dollar demand higher at $11–12 billion, which could be rerouted from the spot market to the RBI.

"This should temporarily ease spot pressure on the rupee, masking underlying balance of payments vulnerabilities that could resurface once the window closes. While the facility directly draws down forex reserves, it could also reduce the need for broader RBI spot intervention," she said.

Meanwhile, global market sentiments remained cautious as hostilities continued between Saudi Arabia and Houthis.