MUMBAI: India’s central bank has mounted an aggressive defence of the rupee this week, deploying an estimated $12 billion to contain the fallout from an escalating Middle East war that has pummelled markets and pushed the Asian currency to an all-time low, according to seven bankers.
The figure is the median of estimates bankers shared with Reuters, with the projections ranging from $9 billion to more than $15 billion.
The scale of the intervention underscores the challenge the Reserve Bank of India faces in containing volatility triggered by the Middle East conflict that has entered its seventh day.
The conflict has widened across the Gulf, pushing oil prices up about 16% this week, leading to $2 billion of foreign outflows from Indian equities and spurring importers to increase hedges of near-term payment obligations.
The RBI’s heavy intervention comes against the backdrop of India’s foreign-exchange reserves, which at over $723 billion, are among the largest in the world.
All the bankers spoke on condition of anonymity as they are not authorised to speak publicly.
The Reserve Bank of India, which says it intervenes to curb FX volatility and not target a rate, did not respond to an emailed request for comment.
Central bank casts a wide net
“We have seen the RBI’s footprint across spot, forwards, futures and the NDF (non-deliverable forward) this week. The bulk of the activity appears to have been in the NDF,” one of the bankers, who works at a state-owned lender, said.
The bankers said that the intervention was heaviest on Thursday, when the RBI sold dollars before the local market opened, a tactic it has deployed in the past when depreciation pressures intensify.
Pre-market intervention tends to have an outsized impact since liquidity is relatively low at that time, allowing modest dollar sales to sway the currency sharply while resetting sentiment.
After an initial push, the RBI typically needs to continue selling dollars through the day to reinforce the price signal and prevent the currency from slipping back, bankers said.
On Thursday, the Asian currency rallied by nearly one rupee in the interbank order matching system within a few minutes on the back of the pre-open intervention, moving from around 92.10 to about 91.10 per dollar.
Since then, the rupee has trimmed a part of its rally, and was quoting at 91.68 per dollar at 2:00 p.m. IST on Friday.
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