The Reserve Bank of India‘s involvement prevented the rupee from breaching the psychologically crucial barrier of 80 per dollar on Thursday after market hours in the spot market, according to the currency traders’ claims.
Under anonymity, the dealers claimed that the central bank most likely sold more than $1 billion of currency on Friday to stabilise the rupee.
Concerning the dollar, the rupee depreciated to an intraday low of 79.96 on Friday before recovering to settle at 79.88.
“Eighty is a psychological level. It will not be easy to break this level easily. Oil prices are stabilising, and structurally India is becoming better off than a couple of days ago. There could have been supply from the RBI side as well to smoothen volatility,” said Bhaskar Panda, senior vice-president, treasury advisory group, HDFC Bank Ltd.
Aside from the central bank’s intervention, traders’ nerves calmed down from remarks made by two US Fed governors, who said they preferred a 75 basis point rate hike at this month’s Federal Open Market Committee meeting. This hike was after the US reported its worst June inflation over four decades.
Although traders were less anxious following the remarks of St. Louis Fed president James Bullard and Fed governor Christopher Waller, reports reveal that investors still assume a 45 per cent possibility of a whole percentage-point rate hike.
Participants in the market will keenly monitor US President Joe Biden‘s trip to Saudi Arabia.
Many anticipate that he would urge Opec and Saudi to increase oil production to lower the high global crude prices that have been fueling inflation globally.
The rupee is now under pressure due to continuous selling by foreign portfolio investors (FPIs). By July 13, they had sold 2.25 trillion in stocks this year.
“India’s depreciating rupee, widening trade deficit, selling pressure from FPIs and volatility in global crude prices are augmenting the economic and financial impediments. RBI is attempting to diversify sources of forex funding, mitigate volatility in the forex market and contain global spill-overs to prevent the devaluation of the rupee,” according to Mitul Shah, head of research at Reliance Securities.