Reuters reported on Friday that the Reserve Bank of India (NSE: BOI) (RBI) intervened in the currency market to support the rupee before the opening of the local spot market.
This move came ahead of a highly-anticipated monetary policy announcement. According to traders, the rupee, which was initially quoted at 87.56-87.58 on the interbank matching system around 08:45 a.m. IST, strengthened to open at 87.45 at 09:00 a.m. IST. The currency was later quoted at 87.4525.
It was observed that state-run banks were selling dollars, presumably on behalf of the RBI, as part of the intervention efforts. One trader told Reuters that their orders at 87.54, 87.50, and 87.46 were all filled before the market opened, with all transactions linked to state-run banks. This suggests a concerted effort to bolster the rupee’s value.
The intervention came at a time when the dollar index, which measures the U.S. dollar against a basket of other major currencies, remained relatively unchanged at 107.8. Meanwhile, other Asian currencies were mostly gaining in strength. Market participants were eagerly waiting for the RBI’s policy decision, which was scheduled to be announced at 10 a.m. IST. There was widespread expectation that the RBI would cut interest rates by 25 basis points.
The monetary policy decision by the RBI is closely monitored by market players as it can significantly influence currency valuations. A rate cut often leads to a weakening of the domestic currency because it tends to reduce the inflow of foreign capital, as investors seek higher returns elsewhere. In anticipation of the policy announcement and its potential impact on the rupee, the RBI’s intervention appeared to be a preemptive measure to maintain currency stability.
