The Indian rupee remained steady on Thursday, as suspected intervention by the Reserve Bank of India (RBI) provided support to the currency amid sustained demand for dollars from importers and foreign banks.
At 11:20 a.m. IST, the rupee was trading at 84.4625 against the US dollar, marginally weaker than its previous close of 84.4525. Traders reported the presence of state-run banks selling dollars in early trade, likely on behalf of the RBI, to prevent the currency from breaching the critical 84.50 level.
Central Bank Intervention
The RBI has been active in recent trading sessions, stepping in to shield the rupee as it hovers near its all-time low of 84.5075, recorded last week. The central bank’s interventions, though not officially confirmed, are a common strategy employed to stabilise the currency and maintain market confidence.
“State-owned banks have been selling dollars, which we suspect is on behalf of the central bank,” said a trader from a private bank.
Despite the support, dollar bids from foreign banks and importers added pressure on the rupee, as end-of-month demand for the greenback typically spikes due to trade settlements and other obligations.
Broader Market Trends
Elsewhere, other Asian currencies showed mixed movements against the dollar, reflecting global market volatility. The US dollar index, which measures the dollar’s strength against a basket of currencies, trimmed losses after dropping 0.7% on Wednesday.
The decline in the dollar index was attributed to profit-taking and easing US bond yields ahead of the Thanksgiving holiday. DBS Bank, in its market note, highlighted the unpredictable nature of financial markets, exacerbated by recent comments from US President-elect Donald Trump regarding potential tariffs on China, Canada, and Mexico.
“Profit-taking sent the USD and US bond yields lower,” the note said. “We remain vigilant against more volatility, mindful that Trump is also unpredictable.”
Forward Premiums and Bond Yields
In the forward market, dollar-rupee far forward premiums edged higher, supported by a decline in US bond yields. The 1-year implied yield rose to 2.23%, its highest in three weeks, reflecting increased expectations of a stable rupee in the medium term.
According to a trader at a state-run bank, “Far forward premiums have formed a range for now, and the 1-year is likely to stay between 2.10% and 2.40% unless there is a significant shift in rate cut expectations.”
The movements in premiums suggest a cautious approach from market participants, who are closely monitoring global interest rate trends and domestic inflation data.
Policy Expectations
Looking ahead, the RBI is widely expected to maintain its current policy rates during its upcoming meeting next week. The central bank has taken a cautious stance, balancing inflationary pressures and the need to support economic growth.
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On the international front, markets are pricing in a near-70% chance of a rate cut by the US Federal Reserve in December. Such a move could ease the pressure on the rupee by narrowing the interest rate differential between India and the United States.
Challenges Ahead
The rupee’s stability remains contingent on a combination of global and domestic factors. While the RBI’s interventions have provided a buffer, sustained dollar demand from importers, coupled with geopolitical uncertainties and fluctuating crude oil prices, pose challenges for the currency.
Analysts suggest that any significant depreciation beyond the 84.50 mark could trigger further central bank action to prevent panic in the market.
“The RBI’s strategy appears to be clear — defend the key psychological level without burning excessive reserves,” said a market strategist.
The Indian rupee’s performance on Thursday underscores the fine balance between market forces and central bank intervention. As the currency navigates global headwinds and domestic pressures, all eyes remain on the RBI’s policy meeting next week and the Federal Reserve’s upcoming decisions.
For now, the rupee’s stability near the 84.50 level highlights the critical role of active management in safeguarding economic stability.
