The Reserve Bank of India (RBI) is unlikely to change its strategy of stepping into the currency market to ensure stability of the rupee, forex experts said.
Even though the Indian currency has been under pressure and trading downhill for the last few days, depreciated only 2.74 percent year-to-date, it features among the least volatile currencies in Asia which, according to currency experts, is because of timely and strategic intervention by the RBI.
“We believe the central bank's action would be driven by a situation and may intervene to curtail volatility. Since the last two years, the strategy of intervening has rewarded in making the rupee stable,” said Dilip Parmar, a foreign exchange research analyst at HDFC Securities.
According to the Bloomberg data, in comparison to Japanese Yen and South Korea’s Won, the Indian rupee seems to have held up well with volatility depreciating 2.74 percent against the US dollar. Japanese Yen is down 10.67 percent against dollar, while South Korea’s Won has depreciated 12.57 percent, and Philippine’s Peso is down 4.25 percent, year-to-date.
However, among Asian peers such as the Malaysian Ringgit, Hong Kong Dollar and the Thai Baht, the Indian Rupee’s performance has been weak. The other three currencies have appreciated against the US dollar by 2.80 percent, 0.63 percent, and 0.38 percent, respectively.
The RBI has been making regular intervention in the spot as well as forward market to secure stability for the currency, experts said. Regular intervention by the central bank on both sides by selling the dollar to prevent sharp depreciation and on some days buying the dollar when the rupee is appreciating, has helped the rupee remain less volatile through the year.
Earlier this year, former RBI governor Shaktikanta Das said that the central bank is there in a non-deliverable forward (NDF) market and the intervention has undergone some changes. "Our intervention in the NDF market has also undergone a change, we are now very clear and explicit that the RBI is there in the forward market, and we are there," Das said in his June post-monetary policy press conference.
The RBI, in its annual report for 2023-24, said the central bank has plans to enhance intervention toolkit to undertake focussed foreign exchange operations to curb undue volatility in the USD/INR exchange rate.
In the last few weeks, the rupee has come under pressure due to reasons such as outflows from Indian equities, strong dollar index, weak economic growth data, and demand for dollars from importers. All these have driven the Indian rupee to record lows on most of the days in December.
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