RBI Ready To Stabilise Rupee As India-Pakistan-Tensions Rise

India’s central bank doesn’t expect wild swings in the rupee but is ready to use foreign reserves to preserve currency stability as tensions with Pakistan escalate, according to people familiar with the matter.

Currency market intervention could happen at the margins to iron out volatility, although the Reserve Bank of India will not target any specific level for the rupee, the people said, asking not to be identified given the sensitivity of the matter. The RBI is closely monitoring if speculative positions are being built and it won’t hesitate to intervene to break those, one of the people said.

The RBI has so far refrained from taking aggressive action to prop up the currency since the India-Pakistan border conflict started earlier this week, even as rupee fell over 1% against the dollar intraday Thursday, the most in three years. The restraint likely stemmed from the perception that the currency weakness on Thursday was largely triggered by the dollar’s broader strength, one of the people said.

That said, the RBI has used sudden intervention before to curb speculation, surprising traders who expected a more hands-off approach from Governor Sanjay Malhotra who took charge in December last year.