The Reserve Bank of India (RBI) sold fewer dollars on Monday than it did the previous week, despite the rupee plunging down to Rs 81.50 against a US dollar. The exchange rate reached a two year low, highlighting the significance of aggressive interventions to stabilize the Indian Rupee, in the light of the US dollar’s worldwide surge.
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The rupee has been volatile against the US dollar as a consequence of the global market situations, foreign money outflows, and fears of recession in India and across the world.
The RBI Took Actions During this Period to Soften the Rupee's Slide
The Reserve Bank (RBI) has been utilizing multiple channels like the stocks, futures, and overseas derivative markets to dial down the rate of depreciation of the Indian Rupee. However, its interventions seem to be on a lighter and softer note, and not strictly aiming for an ideal currency exchange rate for the Indian Rupee.
In this context, the managing director of the DBS Bank, Ashhish Vaidya, stated:
"Intervention will only be there to smoothen the volatility, but the RBI is unlikely to expend large reserves to defend any level. "It is always best to allow market forces to play out within reasonable parameters."
According to spot market dealers, the RBI did sell dollars in the spot market on Monday, but the amount was unfortunately reduced by half the amount, from more than $2 billion on Friday to $1 billion on Monday. RBIs activities in the spot market seemingly became more prominent after the rupee exchange rate fell to Rs.81.60 against the US dollar.
The Rupee has Become Asia's Worst-performing Currency
The dollar index, which compares the Indian currency to all other major currencies of the world, is at its peak since the beginning of this millennium. The index crossed 114, indicating a higher relative strength of the dollar against the Indian Rupee. The rupee fell by 0.78% on Monday, making it the third worst-performing currency in the Asian Continent.
To quote Parul Mittal, the head of the Standard Chartered Bank of India, “Dollar strength has had a knock-on effect on all other global currencies amid the continued strong risk-off sentiment. The RBI supposedly intervened in the market through a combination of tools as an element of pressure was also felt in the overseas currency markets. The rupee’s move on Monday was not an outlier.”
