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India’s rupee rallied by the most in over two years on suspected strong intervention by the central bank, catching traders offguard after the currency hit a series of record lows in recent weeks.
The currency gained nearly 1%, the most since November 2022, to 86.6362 per dollar in Asia’s best performance on Tuesday. It was last trading up 0.8%.
The surprise rally “will take out speculative positioning,” said Ashhish Vaidya, head of treasury at DBS Bank Ltd. in Mumbai. “It’s a very smart move by the RBI.”
The rupee has weakened more than 2% since the new Reserve Bank of India Governor Sanjay Malhotra took office in December, encouraging speculation that he’s more open to letting the currency float more freely. An email and a phone call to the central bank’s spokesperson weren’t immediately answered.
Malhotra in his first comments on currency strategy last week said the RBI’s policy remains consistent in its aim to maintain stability without hurting market efficiency. “Our interventions focus on smoothening excessive and disruptive volatility rather than targeting any specific exchange rate level or band.”
His predecessor Shaktikanta Das focused on keeping currency swings to the minimum, using the central bank’s foreign-exchange reserves that hit a record $705 billion in September. That approach crushed the rupee’s volatility to among the lowest in emerging markets, as Das sought to impart predictability to foreign investors as well as local importers and exporters.
Tuesday’s gain “is a signal to the market that the RBI is not OK with currency depreciating at such a fast pace,” said Radhika Piplani, an economist at DAM Capital Ltd. “It is looking for stability, else the foreign inflows and external sector stability will be at risk.”
Stop Loss Hit
A foreign bank hit a first ‘stop-loss’ on its long-dollar bet after the rupee’s ascent Tuesday hit 0.5%, according to a trader familiar with the matter, who declined to be identified as he is not authorized to speak publicly.
A ‘stop-loss’ refers to limits traders place to contain losses. Once the limits are breached, banks square off those bets. Fresh interventions, which lifted the rupee further, triggered another round of trading losses, the trader said.
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