RBI Intervention Boosts Rupee After Record Fall
The Indian rupee rebounded strongly on Monday, posting its biggest one-day gain in a month to close at 89.23 against the dollar, following aggressive intervention by the Reserve Bank of India. This recovery came after Friday’s sharp decline when the currency hit a record low of 89.61.
Key Takeaways
- Rupee gains 0.3% to close at 89.23 after RBI intervention
- Currency remains down 4.3% year-to-date
- Traders expect further pressure amid US trade deal uncertainty
- Foreign investors have pulled out nearly $17 billion this fiscal
Precarious Currency Trajectory
Despite the RBI’s support, analysts remain cautious about the rupee’s outlook. “The rupee faces a precarious trajectory, seeming inevitably drawn towards the 90-threshold, aggravated by foreign capital outflows, uncertainty over Indo-US trade deals and an expanding trade imbalance,” said Dilip Parmar, senior research analyst at HDFC Securities.
Parmar expects the rupee to trade between 87.50 and 90 in the coming quarter, maintaining a positive bias. Most experts believe the current weakness is temporary and a favorable US trade deal could help the currency stabilize around 88 levels.
RBI’s Strategic Intervention
Traders reported that the Reserve Bank intervened before markets opened and continued intermittently throughout the day. Forex advisory firm IFA Global noted, “The RBI may have thought it more prudent to conserve ammunition and intervene at higher levels instead of going all in at 88.80 itself.”
The firm maintains a bearish outlook, expecting the rupee to hover between 88-89.50 over the next six weeks.
Multiple Pressure Points
Several factors continue to weigh on the Indian currency:
- Uncertainty over US-India trade negotiations
- Continuing foreign portfolio outflows totaling $17 billion
- Month-end dollar demand from importers
- Strong US dollar index performance
Market Impact and Expert Views
The rupee’s unusual decline against a calm global backdrop has puzzled traders. CR Forex Advisors noted that thin dollar supply and aggressive buying created a liquidity gap, while the RBI’s temporary withdrawal triggered stop-loss orders.
Rahul Kalantari of Mehta Equities warned that “a record-weak rupee creates risk-off sentiment in the equity market as investors worry about higher imported inflation and rising corporate input costs.”
However, VK Vijayakumar of Geojit Investments offered a contrasting perspective, stating the depreciation is “unlikely to impact the market significantly” at this stage, especially with cooled valuations. He expects foreign investors to return as earnings visibility improves.
