Large state-owned and private banks have been seen selling dollars on behalf of the RBI both on the spot market, and through GIFT City branches, they said.
The RBI did not immediately respond to ET’s question on the matter.
The local unit lost as much as 0.70 percent on Wednesday against the dollar as rising global crude prices along with the worsening Ukraine-Russia conflict weighed on the rupee, which is ranked as the worst performing currency among Asian peers.
The local unit closed at 75.71, about half a percent weaker than Monday’s close, Bloomberg data compiled by ETIG showed. Financial markets were closed on Tuesday due to Mahashivratri.
“The shooting in global crude oil prices along with escalating geopolitical tensions has weighed on the money market in Asia, including India,” said Bhaskar Panda, executive vice president at HDFC Bank. “Efforts have been made to reduce wild swings in the money market. A relatively stable exchange rate could maintain India’s growth prospects in the next financial year.
The volatility index has risen nearly a year high. The Bloomberg Implied Volatility Index rose 47 basis points to 6.99 percent, its highest level since April 21 last year.
Brent crude rose $ 112 per barrel on Wednesday, its highest in eight years, as looming geopolitical tensions and lower supply sparked fears.
“Amid a raft of negativity this week, the rupee showed wild swings on Wednesday,” said Anindya Banerjee, currency analyst at Kotak Securities. “The central bank has been active in cutting such high volatility by some large banks.”
“Rising crude oil poses a greater threat of domestic inflation, which should be ignored by the dollar in the spot market,” he said.
When banks sell dollars, they buy rupees that absorb liquidity from the system. It also helps in arresting rising consumer prices at a time when India, the second largest consumer of oil in the world, is paying a higher price to import it, essentially passing it on to the end consumer.
Speculations have been circulating that New Delhi may raise oil prices next week after the Uttar Pradesh elections.
“The RBI wants to make sure that ongoing pain does not penetrate the market,” said a money dealer working at a large bank who added that the RBI may have some tacit level in their mind for the exchange rate. .
Whenever it is violently violated, they will take action, the man said. Any gradual, non-casual or sudden move is great for the RBI.
So far this year, the rupee has lost 1.82 percent to the greenback, making it the worst performing currency in Asia.