Robust intervention by RBI saves the day for the rupee

On Friday, India’s equity gauges outshone regional peers in one of the most dramatic rebounds in the country’s trading history. Its currency was no different, with the rupee emerging the second best for the day in Asia after the central bank reportedly stepped in to undergird the unit at record lows.

The central bank is estimated to have sold about $1.5 billion, one of the largest interventions lately, four people with direct knowledge of the matter told ET.

The rupee hit a record low of 74.50 Friday surpassing its erstwhile record of 74.48 in October 2018. It finally gained 0.42 per cent to close at 73.91 per dollar. To be sure, the Chinese yuan was the best performing Asian currency Friday.


The Reserve Bank of India (RBI) did not reply to ET’s mailed query.

“Central banks across the world are trying to smoothen the markets in the wake of the dislocation caused by Covid-19,” said DBS Bank country treasurer Ashish Vaidya. “The RBI is seeking to maintain stability in the financial markets. For now, the rupee seems to be well protected.”

The rapid spread of coronavirus has triggered urgency among global central banks to address dollar shortage.

“This is supposed to be one of the largest interventions on the (dollar) sale side,” said Anindya Banerjee, currency analyst at Kotak Securities. “Without the central bank intervention, the rupee could have slid further, hitting new record lows.”

RBI was said to have intervened in the spot market, with some stateowned banks selling dollars on behalf of the central bank.

“The heightened risk aversion has led global central banks to open their liquidity tap,” said B Prasanna, global markets head at ICICI Bank.

Overnight, the US Federal Reserve announced repo operation of $1 trillion for one-three-month maturities to address the disruption in the dollar funding market.

The People Bank of China (PBoC) followed it up with a cut in its reserve requirement for banks by 0.5 per cent to 1 per cent. The Bank of Japan undertook unscheduled bond purchases.

“These measures have led to some recovery in global equities markets and marginal ease in EM currencies, including that of the rupee in today’s session,” said Prasanna, adding that the currency market sensed intermittent RBI interventions.

The South Korea regulators announced a ban on short selling of stocks for six months along with ease in share buyback rules.

The quantum of central bank intervention which took place on Friday is assumed to be rare.

Mint Street’s forex reserves rose to a record high of $487.2 billion, paving the way for its intervention to stem the rupee’s losses.

On Thursday, RBI announced conducting a $2-billion swap auction to help inject liquidity.