“Over the last couple of years the RBI had been keen to deploy reserves whenever the rupee
approached 69, but last week’s action suggests the RBI may be shifting its red lines as a result of peer currency weakness,” said Maximillian Lin, an emerging-market Asia strategist at NatWest Markets Plc in Singapore. Lin sees the rupee at 70.40 by year-end.
The rupee fell 0.1 per cent to 70.19 per dollar on Friday, widening its year-to-date loss to 9 per cent, the worst in Asia. The currency hit an all-time low of 70.3950 on Aug. 16.
While the RBI’s headline foreign-currency reserves fell $1.8 billion for the week of Aug. 10, the drop was probably largely due to valuation effects, according to Bloomberg Intelligence economist Abhishek Gupta. India held $400.9 billion of reserves as of Aug. 10, down from a record $426 billion mid-April, with the latest weekly data due today.
“We are in a very uncertain world, and I think the RBI would like to keep reserves in their pocket, not trying to spend too fast,” said Gopikrishnan MS, head of foreign exchange, rates and credit for South Asia at Standard Chartered Plc in Mumbai. “If it’s going to be a global phenomena, outside India’s control, then the intervention will be low.”
The Reserve Bank of India has said it does not target any particular level of the exchange rate and steps in only to curb undue volatility in the currency. Data on intervention is published with a two-month lag.