Mumbai, Oct 3 (The Street Press) – On Tuesday, the Indian rupee dropped in value because of higher interest rates on U.S. government bonds and the overall strength of the U.S. dollar, which made it harder for Asian currencies to stay strong. But, the Reserve Bank of India (RBI) likely stepped in to prevent the Indian rupee from reaching its lowest-ever value, providing support to the local currency. As of 11:15 a.m. IST, the rupee was at 83.20 against the U.S. dollar, slightly higher than its previous closing rate of 83.04.
Reports suggest that the RBI may have sold U.S. dollars in the non-deliverable forwards market before the spot market opened, according to information from five traders. According to a foreign exchange trader at a private bank, it’s probable that the RBI will continue supplying dollars to prevent the rupee from reaching levels around 83.24-83.25. Traders also mentioned that dollar sales from foreign banks related to custodial flows could further support the rupee.
Given that the rupee has been nearing its all-time lows in recent weeks, it appears that the RBI has been actively involved in the non-deliverable forwards market to alleviate the pressure on the local currency.
On Tuesday, the U.S. 10-year Treasury yield surged to 4.70%, marking its highest level since October 2007. This increase comes amidst expectations that U.S. interest rates will remain elevated for an extended period.
The dollar index also rose to 107.19, reaching its highest point since November 2022. Among Asian currencies, the Thai baht and Indonesian rupiah experienced the most significant declines. According to a Reuters poll, short positions on the rupee have reached their highest levels since November 2022.
Anindya Banerjee, the head of foreign exchange research at Kotak Securities, expressed some confusion about the Reserve Bank of India’s actions, given that the rupee has been relatively strong in comparison to other Asian currencies. Anindya Banerjee suggests that if the rupee falls below the previous record low of 83.29, which was reached in October 2022, there could be a swift increase in demand for the U.S. dollar.
Investors are keeping a close eye on upcoming U.S. labor market data and the Reserve Bank of India’s monetary policy decision scheduled for later this week. It’s widely anticipated that the RBI will maintain its current benchmark policy rates.
