Rupee Off Record Lows As RBI Intervenes To Stem Further Losses

The rupee reversed from record lows after the Reserve Bank of India intervened in both the spot and the futures markets.

At the interbank foreign exchange, the rupee opened weak at 77.67 against the dollar, then lost further ground to hit its record intra-day low of 77.7975 to a dollar.

But the currency recouped some losses after the RBI intervened to stem the losses and was last at around 77.60 per dollar.

Reuters quoted traders and reported that the central bank started selling dollars via state-run banks at around 77.75 rupee levels helping the currency regain some ground. 

According to traders, the RBI has been active in both spot and futures markets in recent weeks to help limit sharp volatility in the rupee.

"Given that the RBI has ample FX reserves, we expect the rupee to remain more stable and weaken less than most other EM currencies against the greenback over the next couple of years," Adam Hoyes, assistant economist at Capital Economics, said in a note.

After its previous record low close of 77.50 on Thursday, during which it hit a new intra-day weak level of 77.63 against the American currency, the rupee recovered to end at 77.31 on Friday as the RBI has intervened in the open market then as well to stem the volatility.

The interbank foreign exchange market in India was shut on Monday because of the Buddha Purnima holiday. 

The currency had previously breached 77 against the dollar for the first time ever earlier in March.

And since then, what has not helped the rupee is the recent surge in inflation.

Indeed, the wholesale price-based inflation (WPI) accelerated to 15.08 per cent in April from a year ago; government data showed on Tuesday. Reuters reported that it was the highest since April 2005.

Last week, data showed retail inflation had surged to 7.79 per cent in April, its highest pace in eight years and above the upper end of the RBI's 2-6 per cent target range for the fourth straight month.

High inflation prints may force the central bank's hand into raising rates in its June policy review after unexpectedly raising them by 40 basis points in an out-of-turn meeting earlier this month.

"The Indian rupee has depreciated nearly 6 per cent in the past 1 year, in the process hitting multiple lows. The INR hit a fresh all-time low due to a rise in the dollar index and concerns around global economic growth," said Nish Bhatt, Founder & CEO of Millwood Kane International - an Investment consulting firm.

"We expect the currency to face pressure as inflation is on an upward spiral raising concerns about further rate action by the central bank," he added.

Emerging markets assets have taken a beating on foreign capital exodus driven by the dollar's appeal on a general increase in flight-to-safety trades.

The rally in Indian shares after losses for the second straight session helped prevent a further slide in the rupee. 

But foreign funds have been net sellers of India's stocks and debt. They have sold more than $20 billion worth of shares and around $2 billion in debt in 2022.

The latest stock exchange data showed foreign institutional investors (FIIs) remained net sellers in the capital market as they offloaded Indian shares worth ₹ 1,788.93 crore on Monday.

"The rupee fell to a fresh all-time low as broader strength in the dollar continued and global crude oil prices continued to trade higher. Last week's inflation number released on the domestic front and from the US came in higher, disturbing the overall market sentiment," said Gaurang Somaiya, Forex & Bullion Analyst, Motilal Oswal Financial Services.

"We expect...the USDINR...in the range of 77.40 and 78.20," he added.