Rupee Rebounds Sharply As RBI Steps In, Falling Oil Prices Ease Pressure

Mumbai, May 21: The rupee staged a sharp recovery on Thursday after the Reserve Bank of India (RBI) reportedly stepped up intervention in the foreign exchange market, while easing crude oil prices offered additional relief to the battered currency.

The rupee traded 42paise higher at 96.40 against the U.S. dollar, snapping a prolonged losing streak that had pushed the currency to successive all-time lows in recent sessions. The local unit opened 52 paise higher at 96.30 against dollar.

The RBI reportedly resumed aggressive pre-market dollar selling through state-run banks in an attempt to arrest the rupee’s sharp slide and curb speculative bearish positions. The intervention helped the currency recover after it had nearly breached the 97-per-dollar mark.

Oil Decline Provides Relief

The rebound in the rupee also coincided with a sharp correction in crude oil prices, which had emerged as one of the biggest pressure points for India’s currency and macroeconomic outlook.

Brent crude slipped closer to the $105-per-barrel mark, while U.S. crude fell below $100 after optimism grew around a possible diplomatic breakthrough between the United States and Iran.

Lower oil prices are seen as positive for India, which imports a large portion of its energy requirements. Softer crude prices help ease concerns around imported inflation, trade deficits and pressure on foreign exchange reserves.

The rupee’s recent weakness had been driven largely by the spike in oil prices following escalating Middle East tensions, rising U.S. bond yields and persistent foreign fund outflows.

RBI Returns to Aggressive Defence

According to news agency Reuters, the RBI’s latest move marks a return to its earlier strategy of aggressive intervention aimed at breaking one-way market positioning against the rupee.

The central bank has intervened repeatedly in recent weeks through spot market dollar sales, offshore non-deliverable forwards and liquidity measures to contain excessive volatility in the currency market.

The RBI is also set to conduct a $5 billion dollar-rupee swap auction later this month to support liquidity and help stabilise the currency further.

Volatility Concerns Remain

Despite Thursday’s rebound, rupee could remain volatile amid uncertainty surrounding geopolitical developments, still-elevated energy prices and global interest rates.

Foreign institutional investors have continued to pull money out of Indian equities, while higher U.S. Treasury yields have kept the dollar broadly supported against emerging market currencies.

Market participants are now closely watching whether the correction in oil prices sustains and whether RBI intervention can prevent another bout of sharp weakness in the domestic currency.

Source:

• spot rates from https://www.moneycontrol.com/markets/currencies/