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India asks banks to stop making large bets against rupee, sources say
The RBI has asked banks to avoid large bets against the rupee and the instructions are a form of "oral intervention" by the central bank, a senior banker at a private bank said.
FILE PHOTO: A woman walks past the Reserve Bank of India (RBI) logo inside its headquarters in Mumbai, India, April 6, 2023. / REUTERS/Francis Mascarenhas/File Photo
India's central bank has asked state-run and private lenders to refrain from betting heavily against the rupee in an effort to support the currency which has been teetering near record-low levels for the past three trading sessions, four sources said.
The Reserve Bank of India (RBI) informally communicated the instructions to bankers via phone calls on Oct. 7 with the rupee at risk of breaching its record low of 83.9850 per U.S. dollar, the sources said.
The RBI has asked banks to avoid large bets against the rupee and the instructions are a form of "oral intervention" by the central bank, a senior banker at a private bank said.
The news has not been previously reported.
The sources declined to be identified as they are not authorised to speak to the media. The RBI did not immediately respond to a mail requesting comment. Reuters could not ascertain the full list of banks the RBI called.
The central bank steps in occasionally to support the rupee via moral suasion and had last done something similar in early August.
The rupee has been under pressure because of a surge in portfolio outflows, higher oil prices and strength in the dollar after U.S. economic data diminished hopes of large rate cuts by the Federal Reserve.
Overseas investors have pulled out about $4 billion from Indian stocks over the last four sessions while Brent oil prices have climbed to their highest since August, fuelled by concerns of a wider conflict in the Middle East.
But the "central bank has made its intentions clear about defending 84 and is unlikely to allow a breach of it soon", a senior banker at a state-run bank said, referring to the central bank's instructions on Oct. 7.
The RBI has also intervened in the non-deliverable forwards and local spot market, traders said.
The central bank's defence has meant the rupee has fallen 0.3% over last week while its Asian peers have declined between 0.6 to 2.7 percent in the same time period.
"We expect RBI to remain an important player and cap any sharp moves in INR both ways," MUFG Bank said in a note on Oct. 7.
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