India’s central bank sold dollars heavily before the local market opened on Thursday to lift the rupee, six bankers said, with the scale and timing of the move catching most market participants off guard.
The rupee rallied at the open to 90.4550 per dollar after settling at 90.70 in the previous session. The move was more pronounced on the interbank order-matching system, where the currency surged to 90.14.
A large state-run lender was said to be among the most aggressive sellers, with one banker saying the dollar supply was “indiscriminate”.
“I don’t think anyone would have called this. It’s difficult to gauge why they did this and why today,” a currency trader at a bank said. He said that the rupee has traded at similar levels in recent days without eliciting any visible discomfort from the Reserve Bank of India.
The bankers did not want to be identified as they are not authorised to speak to the media.
The rupee was headed for a largely flat open before the unexpected intervention, with Asian peers showing little reaction to the upside surprise in US payrolls.
The RBI intervention comes against the backdrop of the recent US-India trade deal, which triggered a rally in the rupee. However, after an initial surge, the currency has broadly struggled amid persistent hedging demand from large companies and routine dollar purchases by importers.
“Could it be that the RBI, after such a major trigger, did not want the rupee to weaken further, especially not breach the 91 level?” another banker said.
“Maybe that’s why they sold heavily before the open, to signal their preferred level.”
The central has said on multiple occasions that it does not target any specific level or band for the rupee and only intervenes to curb excessive volatility.
In global markets, US Treasury yields rose on Wednesday after data showed the economy added more jobs than expected in January.
The dollar index initially rose, before pulling back below the 97 level while Asian currencies were mostly stronger.
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