The range between the rupee’s starting and closing values has reduced to 5-7 paise in the past week due to the RBI’s action to stop the currency’s decline. Since December, there has been a gap between 10 and 20 paise.
The intervention has resulted in consistent spot market sales of $1–2 billion per day, according to market participants, and is a hint that the central bank is prepared to protect the rupee. The rupee was down to about 88 to the dollar before that. Both onshore and offshore markets have seen the regulator’s activity, according to forex dealers. Furthermore, it has been active in the market for non-deliverable forwards.
In December, the RBI’s net dollar short-forward position—the total quantity of dollars that will be sold at a predetermined price at a later date—reached an all-time high of $68 billion. A change in approach to protect the rupee against the dollar is evident from the rise in the forward book.
The local currency saw its largest increase since November 2022 on February 11, rising by around 1%, which caused rupee bears to place stop-losses. Traders reported that the central bank had intervened in both the forward and spot markets. The dollar/rupee fell from about 88 to about 86.65 in the spot market as a result of this intervention, causing the rupee to recover sharply.
While the rupee fell from 83.70 to 87.96 versus the dollar on February 10, data indicates that the RBI’s foreign exchange reserves have drastically decreased by more than $75 billion since September 27. The central bank sold $195.6 billion in gross dollars between April and November 2024, while the rupee stayed between 84 and 86 against the dollar.
To cut down the rate of rupee depreciation, the central bank has been selling dollars to keep the currency’s decline in check. The RBI will stick to its dollar-selling plan and keep up its involvement in futures, NDF, and OTC (over-the-counter).
