RBI helps Indian rupee stabilize after hitting record low for seven consecutive sessions
India’s central bank intervened in the currency market on Tuesday to help stabilize the rupee slightly after the unit weakened to 80.05 per dollar, hitting a record low for the seventh consecutive session.
The rupee also benefited from recovery in Indian stocks.
Like most Asian currencies, the rupee has been falling in recent months on hopes of aggressively raising rates by the US Federal Reserve to curb high inflation and prompt investors to flee riskier assets. But the risk has increased.
The US dollar was also hovering above a one-week low, reached overnight lower than major peers as markets lowered odds of a one percent rate hike this month.
The partially convertible rupee recovered from an earlier low to trade at 79.91/92 per dollar by 0536 GMT, compared to its close of 79.97 on Monday.
“The rupee is going to weaken further, it is a given. But how soon and how much will depend on the RBI,” said a senior trader at a private bank.
The Reserve Bank of India has been intervening in both the spot and futures markets to slow the rupee’s fall and has taken several measures to boost foreign fund inflows in recent weeks.
But, traders said that the rupee is suffering due to a sharp depreciation of the dollar and expect India’s current and trade account deficit to continue to widen.
While the recovery in Indian stock markets on Tuesday helped stabilize the rupee, traders warned that this could be just a temporary respite.
So far in 2022, foreign investors have net sold Indian stocks worth over $30 billion, and traders said the downside bias on the rupee will continue until the trend reverses.
India’s benchmark 10-year bond yield also rose, and was trading at 7.46% compared to the previous close of 7.44%, tracking the rise in the US Treasury yield.