(Bloomberg) — The Reserve Bank of India intervened in the foreign exchange market this week to curb speculation in the rupee, according to a person familiar with the central bank’s thinking, surprising traders who expected a more hands-off approach on the currency from the new governor.
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After hitting a series of record lows in recent weeks, the rupee gained nearly 1% against the dollar on Tuesday, its biggest rally in more than two years and the most among Asian peers. While the RBI didn’t disclose the magnitude of its intervention, Anil Kumar Bhansali, head of treasury at Finrex Treasury Advisors, estimated it could have been as much as $11 billion over two days, which he said are levels not previously seen from the authority.
The RBI decided to intervene on Monday and Tuesday after spotting an unusual buildup of speculative positions, which put added pressure on the local currency, the person said, asking not to be identified discussing internal matters. The central bank won’t hesitate to intervene significantly and suddenly to prevent an accumulation in speculative bets, the person said.
The regulator had been keeping a close watch on open positions in the currency markets since the rupee had come under pressure in recent weeks, the person said. The central bank’s position on the rupee remains unchanged in that it’s not targeting a specific level for the currency, but will intervene to smooth out volatility, the person said.
The RBI didn’t immediately respond to an email seeking comment.
New Governor Sanjay Malhotra, who took office in December, had signaled to officials his willingness to let the currency depreciate in line with its Asian peers to help correct some of its overvaluation, Bloomberg News previously reported. The rupee has weakened more than 2% against the dollar since his appointment.
At a press conference following last week’s interest rate decision, Malhotra said the central bank wants “orderliness and stability” in the currency and doesn’t see the need to intervene daily.
Finrex’s Bhansali said the RBI may have sold foreign exchange worth $7 billion on Monday and $4 billion on Tuesday, based on estimates provided by interbank brokers.
–With assistance from Subhadip Sircar.
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