Informist, Thursday, Dec 23, 2021
–Banking source: RBI intervention aimed at reducing volatility
–RBI’s FX interventions not aimed at any specific level
–RBI’s forex interventions marginal in nature
–RBI’s recent FX interventions around $200 mln/day
By T. Bijoy Idicheriah
MUMBAI – In the last fortnight, the Reserve Bank of India intervened in the foreign exchange market by around $200 mln on select days, to ensure liquidity in currency markets and not to target any specific level, a banking industry source told Informist.
On Dec 15, the Indian rupee fell to 76.2300 a dollar, the lowest in over 18 months, amid investor worries related to spread of the Omicron variant of COVID, an announcement related to faster-than-expected policy tightening by the US Federal Reserve, and the subsequent foreign fund outflows from Indian equities.
Today, at 1515 IST, the rupee was at 75.2300 a dollar. It had closed at 75.5500 Wednesday. The rupee’s rise from its recent low has been credited to dollar sales by exporters for year-end requirements and suspected RBI intervention.
The markets believed the RBI had stepped in with strategic interventions to contain the impact of such outflows on the level of the rupee against the dollar. Some media reports even suggested that RBI interventions were as high as $5 bln during the last few sessions.
“The interventions were only marginal in nature,” the source said. “The amounts that have been reported are grossly overstated. It was just about $200 mln in over-the-counter markets on select days, with no intention to target any specific level for the rupee.”
While this was not a planned occurrence, the source said the RBI’s currency market interventions had also helped take out some liquidity from the markets.
Liquidity in the banking system is estimated to be in a surplus of over 6.04 trln rupees, sharply lower compared to 8.23 trln rupees on Dec 14, as per money market operations data from the RBI.
“The FX interventions have helped in sucking out liquidity, but it was not intended. The intention was to provide liquidity in the FX markets but, because Christmas flows have stopped as many participants are on holiday or mandatory leaves.” End
IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT
With inputs from Arushi Jain
Edited by Avishek Dutta
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