Monday, June 5

How Russia pushed the rupee and RBI arrested a rout!

MUMBAI – India’s currency was sucked into the global maelstrom that drained the value of most financial assets after Russia’s pre-dawn military manoeuvres, with the rupee plunging 1.5% to the dollar Thursday before the central bank reportedly stepped in to prevent a total rout.

Traders told ET the central bank probably sold anywhere between $500 million and $1 billion to meet the demand for the greenback.

The Reserve Bank of India (RBI) did not respond to ET’s query.

“The global turmoil roiled the rupee with the local unit turning highly volatile against the dollar,”said Bhaskar Panda, executive vice president at HDFC Bank. “The swings could have been wilder had there not been staggered resistance. You cannot kill the flow but can only limit its intensity.”

Further turbulence is likely.

“Depending on the escalation in Ukraine, more turbulence is expected ahead and may need stronger measures to calm the exchange rate,” Panda said.

The rupee Thursday lost 109 paise to the dollar closing at 75.65, its lowest since December 20. This is the largest single-day drop in the rupee’s value since April 7, show Bloomberg data compiled by ETIG. The local unit was Asia’s worst performing currency during the day and in the year as well.

A south-based public sector lender was reportedly the central bank’s primary intervention vehicle, with the lender seen selling dollars in the spot market on behalf of the RBI, dealers said.

“With equity markets tanking big, the currency market shrugged off its relative stability amid geo-political tensions,” said Anindya Banerjee, currency analyst at Kotak Securities. “While we observed staggered interventions, dealers expected the central bank to be more intense.”

Also Read  Woman faces Texas murder charge after self-induced abortion

“You can expect more action in the coming days as India braces up for its largest IPO sale,” he said.

The Bloomberg one-month implied volatility index surged nearly 100 basis points Thursday to 5.92 percent, its highest since June 21 last year.

State-owned banks were seen selling dollars upward of 75 to a dollar. The move helped curb further swings in the local exchange rate.

“RBI was buffering the fall at different stages,” said a chief dealer from a state-owned bank.

Global Brent crude oil prices soared 12.6 percent this week to $104.9 a barrel. This will raise import bills for large oil consuming countries like India. It crossed the crucial $100 mark for the first time in seven years after Russia announced military operations.

“Exporters found this an opportunity to sell dollars in the forwards amid an expected inflows over LIC of India’s proposed share sale,” said Abhishek Goenka, founder and CEO at IFA Global, a forex advisory firm.

Exporters receive the premium. For example, if an exporting company considers 30 paise premium over 75 rupee a dollar in the next one month against an offshore receivable, it will receive Rs 75.30. Lowering of premium will cut realisations.

“Importers are covering their positions selectively but may intensify bets with the rupee extending losses,” Goenka said.

If the local unit crosses 76.5, importers are expected to rush into buying hedging covers.

Leave a Reply

Your email address will not be published. Required fields are marked *