RBI’s intervention in NDF market caps losses

Reserve Bank of India’s intervention in the spot as well as non-deliverable forward market helped check fall in the rupee, which depreciated only 1.14 per cent against the dollar since the US Fed raised rates by a quarter point on February 1.

However, emerging market (EM) currencies declined 2.74 per cent during the same period even as the dollar index (DXY) jumped 3.60 per cent.

Market experts say the central bank’s active intervention (via dollar sales) ensured that the rupee did not cross the 83 per dollar level.

Amit Pabari, MD, CR Forex Advisors, observed that the major reason the rupee weakened relatively less vis-a-vis emerging market currencies could be the RBI’s bold intervention.

Recent data shows, RBI sold $8.3 billion, resulting in the sharpest fall in reserves in 10 months for the week ending 10th February, he said.

Curb losses

“At the same time, the forward book, which piled up by almost $10 billion at the end of December 2022, might have been used now to curb the currency losses”.

“Further, the RBI likely sold dollars in NDF market before interbank opening, aiming to keep the rupee away from falling below the 83 mark,” Pabari said.

Non-deliverable forward (NDF) market enables trading of a non-convertible currency outside the influence of the domestic authorities. These contracts are settled in a convertible currency, usually US Dollars, as the non-convertible currency cannot be delivered offshore.

“At last, one can observe that, when US DXY and EM currency sharply depreciates or appreciate, Rupee doesn’t fall or rise in line with the same; this means that RBI curbs ‘depreciation’ and ‘volatility’ simultaneously,” opined Pabari.

Overall, the dollar-rupee pair is expected to find strong resistance in the 82.75-83.00 zone, with a final resistance at 83.25, per his assessment.

If the pair remains under the given levels, then there are 65-70 per cent chance that it will fall towards 82 & 81.50 over the short term, he added.

Meanwhile, the rupee closed at 82.73 per dollar on Monday against previous close of 82.82.

‘Lack of triggers’

Anindya Banerjee, Vice President, Kotak Securities Ltd, said: “Lack of triggers is keeping volumes subdued. We believe the central bank could have sold near 82.90 levels on the spot.

“But at the same time, 82.50 and 82.30 are levels where importer demand is offering strong support. Over this week, the focus will be on European flash PMIs and Fed minutes. We expect a range of 82.30 and 83.00 on spot.”