The rupee held below the $84 level on Friday, following a two-month low on Thursday, as the Reserve Bank of India (RBI) increased its intervention in the foreign exchange market to halt the depreciation. After closing nearly unchanged against the dollar on Thursday at 83.9750, the rupee fell to 83.9688 on Friday.
Market players think that the rupee may face more pressure due to the rising crude oil prices caused by the intensification of Iran-Israel tensions, necessitating more frequent interventions by the RBI to prevent significant devaluation.
The increase in crude prices will unavoidably put pressure on the currency because India imports 80% of its energy needs. “The Reserve Bank of India will maintain its position of not allowing the rupee to depreciate significantly. Thus, until things calm down, more RBI interventions are expected” according to CSB Bank group head of Treasury Alok Sing.
The central bank is in a good position to sell dollars to reduce volatility in the domestic currency market because it has sufficient foreign exchange reserves. The RBI will ensure that the value of the rupee does not surpass 84/$. Its FX reserves are more than enough. We have about a year’s worth of import coverage.
