RBI Intervenes To Support Rupee Amid Record Low, Conducts Dollar-Rupee Swaps

The RBI's actions have impacted the dollar-rupee forward premiums, with the 1-year implied yield dropping to a four-month low of 1.97 per cent

India's foreign exchange reserves have already fallen to a five-month low of $656.58 billion as of November 22, underscoring the pressure on the RBI to manage the currency.

Source : PTI

The Reserve Bank of India (RBI) is actively intervening in the forex market, conducting dollar-rupee buy/sell swaps in mid-to-far tenors on Wednesday, according to four traders cited by Reuters. This intervention comes as the rupee struggles to recover after hitting an all-time low of 84.7575 against the dollar in the previous session.

As of 12:05 p.m. IST, the rupee was quoted at 84.69, showing little movement from Tuesday's close. The currency has been under sustained pressure over the past two months, driven by heightened foreign portfolio outflows and a strong dollar fueled by Donald Trump's victory in the US presidential election.

The RBI's actions have impacted the dollar-rupee forward premiums, with the 1-year implied yield dropping to a four-month low of 1.97 per cent. By using buy/sell swaps in the forward market, the central bank supports the rupee without significantly depleting forex reserves or affecting rupee liquidity in domestic markets.

India's foreign exchange reserves have already fallen to a five-month low of $656.58 billion as of November 22, underscoring the pressure on the central bank to manage the currency.

According to traders, the RBI is conducting buy/sell swaps in spot contracts for April, May, and November, receiving mid-to-far tenor premiums in recent sessions. Additionally, the central bank has stepped into the onshore forwards market to manage its growing short position in the non-deliverable forwards market, estimated at $65–$70 billion through November.

The RBI's efforts highlight its commitment to stabilising the rupee amid global and domestic economic challenges.

Meanwhile, RBI's high level panel on Wednesday started deliberations on the bi-monthly monetary policy amid expectations of status quo on interest rate as the retail inflation is above the upper tolerance level of the central bank. The decision taken at the RBI Governor Shaktikanta Das headed six-member Monetary Policy Committee (MPC) will be announced on Friday (December 6).

Das is chairing the last MPC meeting of his current term which ends on December 10. The government has tasked the RBI to ensure consumer price index (CPI) based inflation remains at 4 per cent with a margin of 2 per cent on the either side.