Indian central bank intervenes as rupee drops to record low

[MUMBAI] India’s central bank intervened to shore up the struggling rupee, as elevated oil prices pushed the currency to a record low.

The Reserve Bank of India (RBI) sold small amounts of US dollars in the onshore currency market on Wednesday (May 20), said traders, who asked not to be named discussing private matters. The rupee slipped to an all-time low of 96.965.

The RBI is facing greater pressure to defend the currency, which shed more than 7 per cent this year to rank as Asia’s worst performer.

India is a net energy importer, and surging oil prices following the war are boosting its trade deficit and heightening worries over the cost of fuel subsidies.

“The Reserve Bank of India may have to increasingly step in more if the US dollar/rupee rises quickly closer to the 97 levels, and I believe there are likely measures being prepared as we speak,” said Michael Wan, senior currency analyst at MUFG Bank in Singapore.

Outflows are also adding to pressure on the rupee. Global investors have pulled out a record US$23 billion from the nation’s stocks this year. A spokesperson for the RBI did not immediately respond to an e-mail seeking comment.

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The central bank could step in with fresh measures, including steps to attract external capital, around the 97 to 97.50 level, said Dhiraj Nim, foreign-exchange strategist at Australia and New Zealand Banking Group. BLOOMBERG