RBI steps in aggressively to boost struggling rupee, traders say

The rupee rallied 0.7% to 90.25 in early trading after opening a tad lower on the day at 91.07.

India's central bank intervened aggressively in currency markets on Wednesday, selling dollars to prop up the rupee, bankers said, echoing its earlier heavy-handed efforts to stem a one-way decline in the currency.

The rupee rallied to an intraday high of 89.75 against the U.S. dollar on the interbank order matching system, from near 91.00 seen prior to the intervention. It was last trading at 90.28.

"At about 91, the rupee appears overly depreciated. The central bank had stayed relatively light on FX management in December (until now)," said VRC Reddy, treasury head at Karur Vysya Bank.

The intervention on Wednesday matched Reserve Bank of India's actions in October and November, when it stepped in aggressively on three occasions to disrupt persistent one-way moves in the rupee.

In each instance, the RBI sold dollars heavily in both the spot and non-deliverable forward (NDF) markets, triggering intraday reversals.

Unlike previous ⁠episodes, when intervention occurred before the local market opened, dollar sales on Wednesday came shortly after onshore trading began, said a banker, who requested anonymity as he is not authorised to speak to the media.

The intervention followed a more than 1% slide over the previous four sessions, during which the rupee hit fresh lifetime lows each day

The period was marked by sustained dollar demand and the rupee's disconnect from broader Asian currency movements, with traders citing rising interest in speculative short positions.

Given the rupee's recent price action, the risk ⁠of a decisive ⁠RBI intervention was high, a currency trader at a bank said.

The central bank wants to prevent one-way moves that can encourage speculative runs and intensify importer hedging, he added.

Reuters had reported on Tuesday that bankers had begun flagging the risk of a repeat of the RBI's heavy-handed intervention.

Prior to the RBI's action on Wednesday, the rupee had underperformed its Asian peers, weakening 1.8% in December through Tuesday, while most regional currencies were flat or slightly higher.