RBI sold nearly $8B in September to stabilize falling rupee
What's the story
The Reserve Bank of India (RBI) sold a net $7.91 billion in the foreign exchange market in September, data released on Monday showed. The move was part of the central bank's efforts to stabilize the Indian rupee, which had hit an all-time low of 88.80 in September. In August, RBI had net sold $7.7 billion as well amid similar concerns over currency depreciation.
Market pressures
Trade tensions and import surges pressure rupee
The rupee's depreciation in September was mainly due to trade tensions with the US and a surge in gold and silver imports. These factors have continued to put pressure on the currency, as a trade deal between India and the US remains elusive. On November 21, the rupee hit a new all-time low of 89.49, down 4.5% year-to-date.
Market intervention
RBI's dollar sales and rupee's forward position
As of end-September, the RBI's net outstanding forward and futures dollar sales were at $59.4 billion, marking its first increase in six months. The central bank intervenes in both the spot and forwards market to curb exchange rate volatility. This comes as a response to the rupee's recent depreciation due to penal tariffs on Indian exports and other market factors.
Currency boost
RBI's intervention boosts rupee's value
The RBI intervened aggressively on Monday to stem the rupee's fall after it breached a key level on Friday, bringing the psychological 90-mark into focus. The currency was last trading at 89.16 per US dollar, up 0.35% on the day. Bankers had earlier noted that high dollar demand was behind the rupee's weakness and a trade deal between India and US could help stabilize it further.
Market response
RBI's dollar sales seen as effort to stabilize rupee
The RBI's aggressive dollar sales on Monday were widely seen as an effort to stop the rupee's move before it picked up pace. A senior treasury official at a private sector bank said the backdrop was "very heavy" for the rupee currently, noting that there was no catalyst yet to settle sentiment around the currency. The lack of progress on a US-India trade agreement has further weighed on sentiment, traders said.