Rupee gains as RBI returns to defend currency after slump

INDIA’S rupee bounced back after the Reserve Bank of India (RBI) resumed efforts to support it, following a sharp drop last Friday when the central bank appeared to ease up on the firm defence it had maintained in recent weeks.

The rupee gained as much as 0.4 per cent to 89.08 per US dollar on Monday (Nov 24) after hitting a record low of 89.48 on Friday, when traders were taken off-guard by the RBI’s absence as the currency bore the brunt of steep US tariffs.

Monday’s moves began with sharp offshore gains just minutes before trading commenced at 9 am local time in Mumbai. The RBI sold the greenback overseas and onshore to boost the rupee, according to people familiar with the developments.  

“Several market platforms are lighting up and bid-ask spreads are widening, which is a typical sign of the RBI’s presence in the market,” said Kunal Sodhani, head of treasury at Shinhan Bank in Mumbai. “Without the RBI’s presence, the rupee could have opened around 89.50 and speculative bets could have been built for the currency to head lower.”

Sodhani predicts a range of 88.95-89.35 in the near term. 

The rupee is Asia’s worst performer this year, and further weakness might exacerbate outflows from local equities, while also posing future inflation risks as India is a net importer of fuel. The country’s trade deficit widened to a record in October, with exports to the US plummeting a second straight month after the imposition of 50 per cent tariffs.

“On the back of a higher-than-expected trade deficit, net financial flows have been on the weaker side, thereby pressuring the rupee to depreciate while RBI had been containing the volatility,” wrote Yes Bank economists including Indranil Pan, in a note. 

Delays in finalising a trade deal are dampening sentiment, even after India recently suggested that an accord was close. The US currently levies 50 per cent tariffs on Indian exports.

“It may be only a matter of time before USDINR pushes higher through 90, though we would expect the RBI to resume interventions to smooth any move lower in the rupee,” Barclays strategists wrote in a note.

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