Rupee’s fall below the Rs 91 per dollar mark sheds light on RBI’s forex reserves

Indian rupee

The Indian rupee sunk below Rs 91 per dollar on March 2 for the first time in a month, after geopolitical tensions in the Middle East sent investors scrambling towards safe-haven assets like the US dollar and gold. This has now put the spotlight on the Reserve Bank of India’s (RBI) forex reserves, which have seen swings throughout the month.

Traders and experts, however, say the RBI has enough forex reserves to cover its import bill for a considerable amount of time.

The central bank was apparently judiciously selling the greenback in the last 10-15 trading sessions, according to traders and experts, as the RBI was looking to protect the Rs 91 level and prevent any further depreciation.

Traders and experts now say that the RBI will look to safeguard the psychological Rs 92 per dollar level, and could continue selling the greenback in both the onshore and offshore non-deliverable forwards (NDF) market to maintain the current levels. The rupee touched a record low of Rs 91.98 in late January, just short of the Rs 92 mark.

“We saw early in the morning that the RBI had intervened. So far as a level is concerned, RBI has never thought about any particular level. RBI always mentions that it will manage the volatility, but somehow, to protect the sentiments, it usually targets a psychological level,” Dilip Parmar, a research analyst with HDFC Securities, said.

The central bank has forex reserves worth $723.60 billion as of February 20, according to the latest RBI data, as compared to $725.72 billion in the previous week, suggesting that the RBI has sold nearly $2 billion worth of the greenback to prevent any active sharp fall in the rupee.

However, according to the latest RBI bulletin, the central bank has a net short dollar position of nearly $62.3 billion, as of December-end, as compared to $66 billion in November. The data comes with a one-month lag, but it is indicative that the RBI is looking to sell the dollar in the future, even as the RBI’s short position has pared.

“The current reserves are enough for the RBI to control the rupee. So, they will likely continue intervening in the NDF market. And of course, they may create a little bit of panic in the offshore market. This is just to make the speculative position under control,” a forex dealer with a private bank said.

“If the speculative positions are likely to be built, it may unnecessarily create pressure on the RBI. So, at any point in time, if it feels that a lot of speculative positions are built up, then they may use their reserves to support the rupee from speculators,” the dealer added.

In the near-term, the rupee’s trajectory will be closely tied to global sentiments, while the RBI will also closely monitor any sharp movements. Although it may seem that RBI has the firepower to defend the rupee, much will also depend on how long global uncertainties will linger.

The rupee was last trading at Rs 91.40 to the dollar, as compared to Rs 90.98 in the previous trading session