Rupee rises and holds below 80 against the dollar as RBI promises to take all necessary measures

The RBI has vowed to do everything it takes to safeguard the currency, and the rupee edged higher, following a minor advance in its Asian rivals.

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As the Reserve Bank of India promised to take all necessary measures to protect the rupee from “jerky fluctuations,” the rupee edged up on Monday, following a minor increase in its Asian counterparts.

However, losses in local stock markets ahead of this week’s Federal Reserve meeting and concerns about risks to global economic activity curbed the currency’s advances.

The rupee was quoted by Bloomberg at 79.7363 against the dollar, down from Friday’s close of 79.8537. According to the news agency, the rupee fluctuated on Monday between 79.7000 and 79.8737.

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According to PTI, the Indian rupee increased 16 paisa to tentatively settle at 79.74 against the US dollar.

According to Reuters, the Indian rupee reached its highest level in over a week. The partially convertible rupee, which had a Friday close of 79.8550 per dollar, concluded trading at 79.73 per dollar, according to the news agency. During trading, the unit climbed to a high of 79.6950, its highest level since July 13.

“The dollar is weakening against most majors in European trade, which has helped the rupee. But with Fed expected to raise rates this week, we could see pressure building up on the rupee again,” the head of trading at a private bank told Reuters.

According to economists, the increasing trade deficit and the US Fed’s anticipated aggressive rate hike later this week to rein in record-high inflation put the rupee at risk of falling even further, to 82 rupees to the dollar, according to a second report.

The RBI has stated, however, that they will protect the Indian rupee from severe volatility and restrict any abrupt fluctuations.

The rupee has held up well, according to the central bank, but they were prepared to use $100 billion in reserves if necessary to protect the currency in these exceptional circumstances, when nearly every currency listed on the opposite side of the exchange rate against the dollar has suffered losses.

According to a member of the Economic Advisory Council, the RBI has every right to use the nation’s foreign exchange reserves to tame the volatility in the movement of the rupee against the dollar.

“I think that the RBI is correct to use the FX reserves to smooth movement in the INR/USD… There is no point targeting an INR/USD level when USD is appreciating against all other majors,” Sanjeev Sanyal told the Reuters Global Markets Forum (GMF) in an interview.

“Longer term, we need to maintain overall macro-stability and allow the cycle to play itself out,” said Mr Sanyal, who was previously India’s chief economic adviser.

The Reserve Bank of India used its war chest to curb the fast depreciation and “jerky fluctuations” in the rupee, as suggested by Governor Shaktikanta Das, who remarked, “You buy an umbrella to use it when it rains!” India’s foreign exchange reserves decreased by $7.5 billion as a result.

According to the most recent figures, close to $70 billion from the record-breaking reserves in October of last year have been lost, along with around $30 billion since Russia invaded Ukraine.

The rupee has fallen by roughly 7.4% from around 74 at the start of the year and has periodically touched new lows, breaking below 80 per dollar for the first time ever this week.

The dollar, meanwhile, was holding steady as investors sought shelter as recent data indicated a slowing global economy and traders braced for a dramatic US interest rate hike this week.

On Wednesday, the US Federal Reserve will wrap up a two-day meeting. The markets are pricing in a rate increase of 75 basis points (bp), with a roughly 9% probability of a rate increase of 100 bp.

“Market reaction will turn on how hawkish Chair (Jerome) Powell sounds with his determination to reduce inflation in the face of slowing growth,” National Australia Bank currency strategist Rodrigo Catril told Reuters.

As investors’ appetite for risk decreased due to concerns about a worldwide economic slowdown, Asian equities lost ground and fell from nearly three-week highs.

Following those indicators, Indian equities indexes finished Monday’s trading session down, ending a six-day winning streak.