The rupee weakened further on Wednesday, breaching the 95-per-dollar mark for the first time in around two weeks as a sharp rise in crude oil prices amid escalating tensions in West Asia kept the local currency under pressure, dealers said.
It touched a low of 95.23 per dollar during the session before recovering some ground to settle at 95.11 per dollar, as Brent crude climbed past $100 a barrel.
The rupee opened weaker and remained under pressure through the early session. Dollar outflows added to the pressure, prompting the Reserve Bank of India to intervene via dollar sales in order to contain excess volatility.
The rupee has fallen by 4.34 per cent since the start of the Iran war. However, it has appreciated by 0.07 per cent in the current month so far.
“The crude price surge has again put pressure on the rupee. There was intervention by the Reserve Bank of India via spot dollar sales. There was speculation of central bank sell-buy swaps, which helped the local currency trim early losses,” said a dealer at a private bank.
Alongside spot intervention, the RBI is also likely to have conducted near-maturity dollar-rupee sell-buy swaps for September and October maturities to absorb surplus rupee liquidity in the banking system, dealers said, adding that the central bank may have transacted at least $1 billion across the two tenors.
The move comes as the banking system continues to sit on a large liquidity surplus after banks mobilised close to $128 billion through FCNR(B) deposits under the RBI’s special swap facility, which had pushed the net liquidity surplus to above Rs 11 trillion.
Forward premiums for September and October rose by around 2.5 paise and 4 paise, respectively, following the likely transactions, lifting premiums across tenors. The one-year dollar-rupee forward implied yield rose 11 basis points to 3.16 per cent, its highest level in more than three months.
Market participants said the weak response to the RBI’s 30-day variable rate reverse repo operation earlier this week had added to the case for using FX sell-buy swaps to manage the liquidity overhang, an option lenders are said to have proposed at a meeting with the central bank last week, arguing it would let the RBI withdraw excess liquidity without putting pressure on bonds and other segments.
Net liquidity in the banking system was in a surplus of Rs 10.48 trillion on Tuesday, the latest RBI data showed.
The overnight weighted average call rate (WACR) — which is the operating target of monetary policy — was trading below the Standing Deposit Facility (SDF) rate and settled at 4.98 per cent, flat against the previous close.
“Oil prices and the pace of RBI intervention are likely to remain the key drivers for the rupee in the near term, with the currency’s sharp fall past the 95 mark reflecting how quickly sentiment can turn when crude spikes alongside geopolitical risk. In the near term, spot rupee is expected to trade within a range, facing resistance at 95.35 and support at 94.80,” said Dilip Parmar, senior research analyst, HDFC Securities.
