The Reserve Bank of India moved quickly on Monday to counter the fresh pressure building on the Indian rupee after the currency slipped past an important level on Friday and brought the psychological 90 mark into focus. By midday, the rupee was trading at 89.16 against the US dollar, gaining 0.35 percent.
Before markets opened at 9 a.m. IST, the interbank order matching system had indicated a fall beyond 89.50 to a new record low. Sentiment shifted once the central bank stepped in. The RBI is understood to have sold dollars on the order matching platform and in the non deliverable forward market, which helped stabilise the mood. Supported by this action, the rupee opened at 89.15.
The currency had moved past 88.80 on Friday, a level that bankers say the RBI had defended for weeks. Its breach triggered concerns that the pressure would continue through this week. Market conversations quickly shifted toward the possibility of a rapid move toward the 90 mark. The central bank’s firm dollar sales on Monday were widely viewed as an attempt to slow the rupee’s slide before momentum built further.
A senior treasury official at a private bank described the environment for the rupee as very heavy and pointed out that there was no catalyst yet to calm market sentiment. Traders added that the lack of progress on a United States India trade agreement has weighed on the outlook, denying the market a policy boost that could have helped offset India’s widening trade deficit and the slow pace of portfolio inflows. Analysts at a major bank noted that even if a trade announcement comes, its positive effect may not last long.
RBI Governor Sanjay Malhotra said on Thursday that the recent weakness in the rupee was due to higher demand for dollars. He added that this pressure could ease if India and the United States reach a trade deal. He also said that India’s foreign exchange reserves provide ample protection for the currency.
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