India's central bank steps up intervention to support rupee after $73 billion inflows
Digital FinanceMacro
The Reserve Bank of India (RBI) has increased the frequency of its market interventions to support the rupee, following inflows of about $73 billion in new funds under measures to attract dollar deposits since June. It has shifted from intervening only during sharp currency moves to regular intervention when the rupee weakens, and has at times sold up to $7 billion in a single day in both domestic and offshore markets. This has brought short-term rupee volatility down to near its lowest level in 10 months, despite persistent pressures from higher oil prices and a narrowing interest rate differential with the United States. The situation has surprised some investors, as the market had grown accustomed to higher rupee volatility under RBI Governor Sanjay Malhotra. The rupee has weakened about 0.8% this quarter, a marked improvement from the January-March period when it fell 5.2%. Meanwhile, importers' demand for forward dollars has risen 40% to about $60 billion per month, and the RBI must also manage the burden of future forward dollar sales worth over $100 billion, without having raised interest rates to protect an economy facing the impact of the Iran war.
