RBI will intervene to soften the impact and limit jerky movements in the rupee
The Reserve Bank of India has intervened in the open market to stem the loss of the rupee recently and will likely continue to do so, although the intervention will be to keep the currency from falling. constraint.
Regarding concerns about currency devaluation for India, sources told NDTV that the RBI will enter the market “to soften the impact” and “limit sharp movements for the rupee.”
While the rupee has risen to 77.25 per dollar from a fresh all-time low beyond 77.50 hit on Monday, it is still well above the previous weak record of around 77 in March.
Traders said the RBI may have intervened – through the sale of dollars on the open market by state banks – after the rupee fell to 77.44 on Monday.
People familiar with the matter say the latest exchange rate volatility is part of a broader trend.
Indeed, the sell-off in risk assets, including the rupee, has been spurred by traders looking for safe-haven investment opportunities amid rising inflation, higher interest rates and anxiety. fear of slowing economic growth.
In addition, the tightening of the lockdown in China, Europe’s plan to ban Russian oil in response to the war with Ukraine, for the third month and the risks of slowing economic growth due to the spiraling commodity prices have been boost the safe-haven appeal of the US dollar.
The US Federal Reserve is poised to raise interest rates aggressively, which has also pushed the dollar to a two-decade high.
Capital outflows from emerging markets are a consequence of aggressive US monetary policy. Investors tend to take refuge in US assets during a rate hike cycle in anticipation of a slowdown in economic activity as a result.
Like other emerging market nations, India has seen strong outflows from its capital markets, which has hurt the rupee and its foreign exchange reserves in recent weeks. this.
India’s foreign exchange reserves fell below $600 billion for the first time in a year, falling for eight straight weeks on the back of continued capital outflows and a weakening rupee on the back of a strong dollar in recent months.
“The RBI will be cautious against cavalier speculators, not the Fed. That is to say, caution warns against trying to challenge broad-based dollar trends. After all, $600 billion in additional reserves is harder to build than to burn,” Bloomberg quoted Vishnu Varathan, head of economics and strategy at Mizuho Bank, in that report.
In fact, it has taken the country over a year to build its foreign exchange reserves to over $630 billion, and in just over two months, or since Russia’s invasion of Ukraine in late February, imports India’s war coverage fell by nearly $34 billion, or about 5.4 percent.
