RBI is estimated to have sold up to $2 bn to curb rupee swings

Large state-owned and private banks were seen selling dollars on behalf of the RBI both in the spot market, and through GIFT City branches, they said.

RBI did not immediately reply to ET’s query on the matter.

The local unit lost as much as 0.70 percent Wednesday to the dollar as soaring global crude prices coupled with escalating Ukraine-Russia conflict weighed on the rupee, which ranked as the worst performing currency among Asian peers.

The local unit closed at 75.71, about half a percent weaker than Monday’s closing, Bloomberg data compiled by ETIG showed. Financial markets were shut on Tuesday due to Mahashivratri.

“Shooting global crude oil prices coupled with escalating geopolitical tension weighed on the Asian currency market, including India’s,” said Bhaskar Panda, executive vice president at HDFC Bank. “Efforts have been made to minimise wild swings in the currency market. A relatively stable exchange rate can retain India’s growth prospects in the next fiscal year.”

The volatility index rose nearly to a year high. The Bloomberg Implied Volatility Index surged 47 basis points to 6.99 percent, its highest level since April 21 last year.

Brent crude surged to $112 per barrel Wednesday, its eight-year high, as menacing geopolitical tensions and lower supply fanned apprehensions.

“Amid a raft of negativity this week, the rupee showed wild swings Wednesday,” said Anindya Banerjee, currency analyst at Kotak Securities. “The central bank turned active in cutting such high volatility through some large banks.”

“Rising crude poses a greater threat of domestic inflation, which should be negated through dollars in the spot market,” he said.

When banks sell dollars, they buy rupees sucking out liquidity from the system. This also helps arrest consumer price rises at a time when India, the second largest consumer of oil in the world, pays a higher price to import it, essentially passing it on to the end consumer.

Speculations are agog that New Delhi may raise petrol prices in the next week after Uttar Pradesh elections are over.

“RBI wants to ensure that ongoing pain should not percolate into the market,” said a currency dealer working in a large bank adding that the RBI may have some tacit level in their mind for the exchange rate.

Whenever it is breaching it sharply, they will swing into action, the person said. Any gradual, not casual or sudden move works well for the RBI.

So far this year, the rupee lost 1.82 percent to the greenback, making it the worst performing Asian currency.