Traders speculating that the Reserve Bank of India is loosening its grip on the rupee

NEW DELHI: The Indian rupee’s enormous advances over the last three days have fueled speculation that the Reserve Bank of India may be loosening its currency controls. The rupee has risen 1.6 percent over the previous three sessions, marking its best three-day advance since March 2020. Over the last two months, the exchange rate fluctuated between 74 and 75 cents per dollar. It climbed to its highest level since June on Wednesday. 

The Reserve Bank of India has previously stated that its currency interventions are intended to reduce volatility. Traders believe the central bank has been scooping up considerable sums of money to keep the rupee from being affected by a flurry of corporate share sales and debt issuance. Now, the currency surge is stoking speculation that the RBI would take a step back, fearing that an excess of rupee liquidity created by these operations will fuel inflation.


According to Madhavi Arora, lead economist at Emkay Global Financial Services Ltd, part of the RBI’s “hands-off foreign currency strategy” in August was to prevent exacerbating the excess liquidity situation caused by its forex intervention. She also stated that the central bank is considering profiting from the rupee gains for its books.

The RBI’s comments on Tuesday bolster this case. Governor Shaktikanta Das stated that the central bank intends to perform more operations to deal with any unexpected spike in banking-system cash due to inflows. When contacted on Wednesday, the RBI declined to comment.

Fleeting Gains

Traders are hesitant to increase optimistic wagers on the rupee because prior incidents have been short-lived, with the RBI rapidly resuming its dollar-buying spree.

According to Anindya Banerjee, currency strategist at Kotak Securities Ltd, the RBI allows the rupee to appreciate at pace with global markets. “However, large gains exceeding 72.50 to a dollar may be prohibited by the RBI.” On Wednesday, the rupee gained 0.1 percent to 72.9725. With gains of over 1.9 percent this quarter, it is Asia’s best-performing FX.

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