NEW DELHI: The Indian rupee recovered from Monday’s sharp depreciation and fell from its new all-time low as the Reserve Bank of India likely stepped in to defend the fall.
Typically, the RBI intervenes in the market through liquidity management, including through the selling of dollars, intending to prevent a steep depreciation in the rupee.
On Monday, the rupee touched a record low of 80.11 to later close the session at 79.96. At 12.18 pm on Tuesday, it traded substantially lower from the previous session’s close to trade at 79.72 against the US dollar.
“The fight to tame inflation is expected to continue in the distant future and the rate hikes are expected to put pressure on the rupee and other emerging market currencies,” said Santosh Meena, Head of Research at Swastika Investmart.
In mid-July too, the rupee slipped below 80 for the first time against the US dollar as high crude oil prices amid tighter global supplies boosted demands for the US dollar.
“The domestic currency still looks to remain well cushioned at the 81.10 mark and unless we see the rupee breaching the crucial 80.10 mark on a closing basis, it looks primed to reverse course and trade with an appreciation bias,” said Sugandha Sachdeva, Vice-President, Commodity and Currency Research, Religare Broking.
India’s foreign exchange (forex) reserves dipped by $6.687 billion to $564.053 billion for the week ended August 19, the lowest level in more than two years, due to a sharp drop in foreign currency assets as the RBI continues to intervene in the currency markets.
As per the Reserve Bank of India’s weekly statistical supplement, foreign currency assets, which are the biggest component of the forex reserves, fell by $5.779 billion to $501.216 billion during the week.
India’s forex reserves have been depleting for several weeks now on account of RBI’s likely intervention in the market to defend the depreciating rupee coupled with strong demand for dollars in order to settle import trade.
To reduce the dominance of the dollar, the RBI earlier this year announced a mechanism to settle payments for international trade in rupees, especially the country’s exports.
The US dollar being the reserve currency of almost all countries is detrimental to other currencies, especially in times of sharp volatility in financial markets as it weakens peer currencies. (ANI)