“To strengthen its offshore short positions, the RBI had to buy dollars and hence the currency fell past the 89.49 level it had been protecting last week,” said Anil Bhansali, head of finance at Finrex Treasury Advisors. “So essentially the RBI bought dollars, and later even sold dollars, to curb excessive volatility.”Significant and noticeable intervention from the RBI helped the rupee rise from 89.79, traders said. The RBI would likely support the rupee to prevent it from breaching the psychologically important 90/$1 mark, she added.
A pending trade deal between New Delhi and Washington, largely expected to materialize in November, also contributed to the currency’s weakness Monday.
The rupee had earlier crossed the record low on November 21 when it closed at 89.49/$1.
To be fair, importers were net buyers of the dollar on Monday as market participants rushed to hedge their positions once stop-losses were activated.
“Any dip (appreciation) in the currency will have to be bought by importers. The rupee is expected to trade on a depreciating trend and the key event that would reverse this is the trade deal with the US,” said Dilip Parmar, currency research analyst at HDFC Securities.
Data released on Friday showed the RBI’s short forward dollar positions grew to $63.6 billion in October, reflecting the central bank’s efforts to support the rupee.
The weakness seen on Monday pushed the real effective exchange rate (REER) of the 40 currencies down to 97.47 in October. With the current weakness, the REER could reach 97, Bhansali said. A REER of less than 100 implies that the currency is undervalued and increases export competitiveness.
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