Rupee Climbs for Third Day as RBI Steps Cut Dollar Demand

Updated 09:36 UTC, Oct 14: The rupee held its gains through Wednesday trade. Market data tracked by The Orbit Post showed the dollar at 95.0825 rupees, down 0.72 percent from 95.7759. Four traders told Reuters the Reserve Bank of India likely intervened on Wednesday to back the recovery from near record low levels. State-run banks were seen offering dollars in early trade, most likely for the RBI, and the rupee rose to 94.95 per dollar, up about 0.3 percent from its previous close and about 2 percent higher on the week. Reuters also reported the rupee touched a high of 94.72 on Wednesday. Importers kept buying forward dollars even after banks raised the cost, charging 11 to 14 paisa per month more to pass on the 20 percent cash set aside the RBI now requires on forward contracts. That demand could test the rally if it grows.

Updated 03:33 UTC, Oct 14: The rupee kept climbing early on Wednesday, Oct 14. Market data tracked by The Orbit Post showed the dollar at 95.02 rupees, down 0.79 percent from 95.7759. Reuters said traders expected the rupee to open between 95.04 and 95.12, after it settled at 95.28 on Tuesday, a gain of 1.5 percent over two sessions. Governor Sanjay Malhotra told Moneycontrol on Tuesday that the forex curbs were not capital controls. He said they were meant to stop speculative bets and keep hedges open for firms with real exposure, and that the RBI was ready to take more steps if needed to keep moves orderly. Reuters reported that bankers read his words as hawkish and saw a stronger case for a December rate hike, with one banker putting a 50 basis point rise on the table. Oil prices rose again on Wednesday, Reuters said, as traders weighed fighting between Yemen's Houthis and Saudi Arabia, a risk that could test the rally.

MUMBAI: The Indian rupee rose for a third straight session on Tuesday, October 13. The dollar traded at 95.28 rupees in market data tracked by The Orbit Post, down 1.55 percent from 96.7753. The Hindu BusinessLine reported a provisional close at 95.38, a gain of 40 paise from the previous close, after the rupee touched 94.96 at its strongest point of the day.

The move extends a sharp turn. On Monday the rupee gained about 1 percent and settled near 95.77 to 95.78, its biggest single day advance in six months, according to Reuters and The Hindu BusinessLine. Over three sessions the currency has gained 150 paise.

The central bank pushed back

The rally followed a set of Reserve Bank of India measures first announced over the weekend and expanded since. The RBI opened a special dollar window for state run oil marketing companies, so their daily dollar buying moves away from the spot market. It barred firms from rebooking cancelled rupee linked derivative contracts. It also required banks to keep a 20 percent reserve on dollar purchases above 2 million dollars, which raises the cost of betting against the rupee.

Reuters reported on Tuesday that the RBI widened that cash deposit rule for foreign exchange hedges to cover all such deals, including hedges for banks own assets and liabilities. The bank also tightened rules on non deliverable rupee derivatives, so lenders in the International Financial Services Centre and some primary dealers can offer them to non residents only for hedging. Traders told Reuters the RBI also sold dollars directly to support the currency.

Why it matters

India buys most of its crude oil from abroad, so oil company dollar demand is a steady pressure on the rupee. Taking that demand out of the spot market removes a daily weight. Higher costs for speculative hedges do the same on the trading side. A softer dollar helped too. The dollar index traded at 102.32, down 0.26 percent, and Brent crude fell 1.93 percent to 104.59 dollars a barrel, The Hindu BusinessLine reported. Mumbai stocks rose the same day, with the Sensex up 1,109.10 points to 73,033.78 and the Nifty up 358.60 points to 22,721.95.

What happens next

Traders cited by the papers see support for the dollar near 95.00 rupees, with a sustained break below that level opening a move toward 94.50. The same reports warn that outside pressure has not gone away. High oil prices, foreign fund outflows and a strong global dollar pushed the rupee close to its record low of 96.96 last week, and those forces can return. For importers, exporters and families who send money home, the next sessions will show whether the RBI steps hold the rupee near 95 or only slow its slide.