The Reserve Bank of India (RBI) has been consistently intervening in the foreign exchange market to support the rupee, a strategy that has kept the currency largely stable despite global volatility. On Tuesday, the RBI reportedly intervened to protect the rupee from pressure caused by elevated oil prices and sustained corporate demand for dollars. State-run banks were observed offering dollars, likely on behalf of the central bank, which kept the rupee little changed at 95.7350 per dollar, within a narrow trading range. This intervention has been a recurring theme in recent trading sessions, anchoring the rupee within a tight band.
This proactive approach by the RBI has limited the rupee's movement, with the currency remaining firmly range-bound around Rs 95.50–96.00. Forex traders noted that while elevated crude prices and importer demand for dollars were weighing on the currency, the RBI's intervention through state-run banks prevented a sharper decline. For instance, on Monday, the rupee slipped to 95.4775 per dollar in early trade, prompting the RBI to step in and sell dollars. Analysts, such as Tanay Dalal of Axis Bank, expect this "nimble management" to continue, projecting the rupee to trade within a 94.50-96.00 range through the end of September.
The central bank's heavy footprint in the FX market has led to subdued volatility in the rupee. For example, 14-day realized volatility dropped to around 2% from over 4% at the start of August, despite Brent crude oil prices remaining elevated near $90 per barrel. This active intervention is reminiscent of past periods when the RBI, particularly under former Governor Shaktikanta Das, tightly managed the rupee's trading range. The RBI's efforts to bolster India's balance of payments, including a special USD-INR forex swap facility that mobilized $73 billion in foreign exchange inflows, have also contributed to India's foreign exchange reserves climbing above $700 billion.
The rupee has faced pressure from several external factors, including rising global oil prices, which saw Brent crude trading 0.30% higher at $92.45 a barrel, and increased demand for the dollar. The dollar index, measuring the US currency against major peers, was up 0.04% at 99.04, supported by safe-haven demand following the US escalation of sanctions on Iran. Geopolitical uncertainty surrounding Iran and weakness in Asian equities have also contributed to the pressure on the Indian currency. Despite these headwinds, the RBI's consistent intervention has largely insulated the rupee from significant depreciation, occasionally leading to gains, such as a 0.8% rise to 95.7838 against the dollar in late July after substantial dollar sales by the central bank.
