RBI Steps In to Purchase Dollars Through State-Owned Banks as Rupee Reaches Six-Month High

The Reserve Bank of India (RBI) is said to have stepped into currency markets on Friday, instructing state-owned banks to buy US dollars as the rupee climbed to its highest point in close to six months. State-owned banks were bidding for dollars aggressively but did not aim at any particular price level, traders said. The decision to hold comes as the rupee climbed to an intra-session high of 83.78, supported by strong dollar inflows and a decline in bearish positions on the domestic currency.

 

Market players say the RBI intervention is designed to cap rupee appreciation, which can hurt export competitiveness. The dollar index, however, fell 0.5% to 99.6, while Asian currencies generally firmed. Traders said RBI policy has been generally passive and opportunistic, soaking up inflows to restore forex reserves that had earlier been drawn down to prop up the rupee when it was weak.

 

India's foreign exchange reserves, which fell to a nine-month low earlier this year, have since recovered but are still below their record high. The central bank's persistent buying of dollars is interpreted as a measure to keep currency stable in the face of volatile global flows.

 

Source: Reuters