Indias central bank reportedly intervened in the currency markets Monday to prevent a further slide in the local unit, which breached the 67 mark to a dollar for the first time in 15 months amid a widening trade gap and runaway import bills fuelled by high crude-oil prices.
Some state-owned banks were seen selling dollars aggressively, interventions that market dealers attributed to the central banks strategy to stem the decline of the Indian rupee against the US currency. The rupee is the worst performing among a dozen Asian monetary units in the past three months. It lost 4.25% to the dollar during the period, show data from Bloomberg.
On Monday, the Reserve Bank of India (RBI) is said to have sold about $800 million collectively on the spot and exchange traded futures markets, dealers said. An email sent to RBI remained unanswered until the publication of this report.
“The currency market has seen such a strong central bank intervention after a long gap,” said Anindya Banerjee, currency analyst at Kotak Securities. “Without such a move, the rupee would have breached higher levels as the worrying factors are showing no signs of fading.”
Through the trading day in Mumbai, the rupee fell as much as half a percent to 67.18 a dollar. Toward the end of the session, the central bank intervention helped it recoup some of its losses, and the unit closed at 67.14, down 0.40%.
The Bloomberg spot dollar index, which measures the unit against 10 currencies, rose about half a percent to trade at 92.92 late Monday India time.
“The rupees loss is a part of the larger dollar move,” said Ashish Vaidya, head of trading at DBS Bank India. “We are seeing similar weaknesses in other emerging market currencies. Higher oil prices continue to worry (us). Countries dependent on oil imports will be hit further as rising crude (prices) continue to put pressure on Indias fiscal and current account deficits.”
Global crude oil prices are causing concern for importers such as India, which meets about four-fifths of its transportation energy needs from overseas shipments. The West Texas Intermediate crude is trading around $70 and Brent held near $75, with most experts predicting the benchmarks would keep rising in the near-term on mounting geopolitical risks.
Indias current account ended in a deficit of $13.5 billion, or 2% of GDP, in the quarter ended December 2017, up from $8.0 billion, or 1.4% of GDP, in the quarter ended December 2016, according to the preliminary data released by the RBI. The CAD was at 1.1% of the GDP in the September quarter.
CAD, which is the excess of imports of goods and services over exports, has accelerated due to rising oil prices and electronics shipments from overseas.
On Monday, state-owned oil importing companies were seen buying the dollar. A large construction conglomerate, too, was enhancing its dollar reserves.
“Some oil and infrastructure companies rushed to buy dollars as they fear a further dip in the rupees value,” said KN Dey, founder, United Financial Consultant, a forex advisory firm.