Authors: Jaspreet Kalra and Nimesh Vora
MUMBAI (Reuters): India’s central bank has asked state and private lenders to refrain from making vast bets against the rupee to support a currency that has been teetering at a record low for the past three trading sessions, four sources said.
The Reserve Bank of India (RBI) informally conveyed instructions to bankers over the phone on Monday, with the rupee at risk of breaching a record low of 83.9850 per US dollar, sources said.
The RBI has asked banks to avoid vast bets against the rupee and the instructions amount to a form of “verbal intervention” by the central bank, said a senior banker at a private bank.
The news was not announced earlier.
The sources declined to provide information because they are not authorized to talk to the media. The RBI did not immediately respond to an email seeking comment. Reuters was unable to ascertain the full list of banks that the RBI called.
The central bank steps in from time to time to support the rupee through moral suasion, and the last time it did something similar was in early August.
The rupee is under pressure due to a keen raise in portfolio outflows, higher oil prices and dollar strength after U.S. economic data dampened hopes of substantial interest rate cuts by the Federal Reserve.
Over the past four sessions, foreign investors have withdrawn about $4 billion from Indian stocks as prices hit their highest level since August, fueled by fears of a wider conflict in the Middle East.
However, “the central bank has made clear that it intends to defend 84, and is unlikely to allow it to be breached soon,” said a senior banker at the state-owned bank, referring to the central bank’s instructions on Monday.
Traders said the RBI also intervened in the delivery futures market and the local spot market.
The central bank’s defense meant the rupiah fell 0.3% over the past week, while the Asian rupiah fell between 0.6 and 2.7% over the same period.
“We expect the RBI to remain an important player and both ways to limit any sharp movements in the INR,” MUFG Bank said in a note on Monday.
