22/02/23

INDIA: Central bank onshore, offshore intervention helps rupee outperform-traders.

As published on brecorder.com, Wednesday 22 February, 2023.

The Reserve Bank of India (RBI) is likely intervening in both the offshore and onshore markets to shield the rupee from the fallout of investors lifting their expectations on the US Federal Reserve’s terminal rate, traders said on Wednesday.

The rupee has fared much better against the dollar than other emerging market currencies since the blowout US jobs report on Feb. 3 raised bets of a higher-for-longer rate regime.

Since then, the rupee has fallen 1.2%.

However, the Korean won has plunged by 6% in that period, the Thai baht by 5.2%, the offshore Chinese yuan by 2.3% and the South African rand by 7%.

After that, however, it has barely budged despite US data over the period further strengthening the case for hawkish monetary policy. That, traders reckon, is mainly due to the RBI’s intervention.

“Without the RBI, there is little doubt that the rupee would be significantly lower,” a currency and rates trader at a Singapore-based hedge fund said.

This trader and two others that Reuters spoke to did not want to be identified on account of their internal policies.

The RBI has been consistently offering dollars, mostly via the Bank for International Settlements, to keep the USD/INR 1-month non-deliverable forward (NDF) below the 83-level before onshore markets open, the hedge fund trader said.

On the order system he uses, the bid-offer on the 1-month NDF is narrower than usual, he pointed out. At times, it is less than one paisa for large quantities, he said, suggesting the RBI has been fairly active, including on Wednesday.

The rupee was little changed at 82.80 on the day despite an overnight jump in US Treasury yields, after an unexpected rebound in US business activity.

“The RBI’s offshore presence, alongside what it is doing onshore, is making speculators stay away from the rupee,” a trader at a Mumbai-based private sector bank said.

A trader at a second private sector bank said one of the largest public sector banks has been “on both sides” in the onshore market, making the rupee “fairly unresponsive”.