The Reserve Bank of India (RBI) has been consistently intervening in the foreign exchange market to prevent the rupee from weakening, particularly in response to elevated oil prices and strong corporate demand for dollars. Traders report that state-run banks are offering dollars, likely on behalf of the RBI, to maintain the rupee within a tight trading range. This intervention has been observed across multiple trading sessions, keeping volatility subdued even amidst fluctuating global markets. For instance, on Tuesday, the rupee remained around 95.7350 per dollar, little changed despite opening down 4 paise.
This proactive stance by the RBI has kept the rupee largely range-bound, oscillating between approximately 95.50-96.00 per dollar. Anil Kumar Bhansali, head of treasury at Finrex Treasury Advisors LLP, noted that the central bank sells dollars around the 95.75 level, while oil companies and the RBI itself buy dollars at the lower end of the range. The intervention strategy is reminiscent of earlier periods where the central bank maintained a firm hand in anchoring the rupee's trading range, with some comparing the current market setup to that of 2024. Despite Brent crude prices trading at about $92.45 a barrel and a stronger dollar index at 99.04, the rupee's movements have been remarkably muted.
However, the rupee did experience some pressure recently after the RBI brought forward the closure of its concessional foreign exchange swap facility for FCNR(B) deposits. This move, which surprised the market, raised concerns about future dollar inflows and contributed to the rupee weakening to 95.61 per dollar. Despite this, dollar sales by the RBI through state-run banks continued to limit further declines. The facility had already mobilized $73 billion in foreign exchange inflows as of August 21, reflecting strong participation from non-resident Indians.
Analysts like Tanay Dalal from Axis Bank commend the RBI's "nimble management" in cushioning the impact of global volatility. The central bank's consistent efforts have led to a collapse in 14-day realized volatility to around 2% from over 4% at the start of August. This heavy FX footprint, alongside robust dollar inflows amounting to nearly $57 billion from measures to bolster India's balance of payments, has contributed to India's foreign exchange reserves climbing above $700 billion for the first time since April.
