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RBI sells fewer dollars despite new rupee low

September 27, 2022

RBI sells fewer dollars despite new rupee low
The Reserve Bank of India (RBI) Monday sold fewer spot dollars than it did last week despite the rupee breaching 81.50 to hit fresh lifetime lows, underscoring the diminishing utility of aggressive interventions in the face of the US currency’s unprecedented global surge that hasn’t spared even the pound and the euro.

As two-year US treasury yields climbed past 4.1% to trigger algorithmic trades that wiped out ₹11 lakh crore of investor wealth in two days, the Reserve Bank tapped multiple platforms – the spot, futures and overseas derivative markets to minimise the pace of depreciation in the local unit, dealers said. But its strategy to support the rupee now appears to be built around more light-footed interventions, delinked from spiritedly defending any particular rate of exchange earlier considered sacrosanct.

“Intervention will only be there to smoothen the volatility, but the RBI is unlikely to expend large reserves to defend any level,” said Ashhish Vaidya, managing Director, DBS Bank. “It is always best to allow market forces to play out within reasonable parameters.”

Dealers said the RBI did sell dollars in the spot market Monday, but the quantum apparently halved to $1 billion from more than $2 billion Friday. Central bank presence in the spot market was more evident when the rupee breached 81.60 to a dollar. The rupee had plunged to a new lifetime low of 81.66 before it cut some losses to end at 81.62 – the lowest ever closing for the unit.

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