Mumbai, India’s central bank remained active in the currency market on Wednesday, defending the 88.80 handle on the dollar–rupee and dampening intraday volatility, according to dealers. State-run banks—seen as proxies for the Reserve Bank of India (RBI)—were spotted selling dollars near 88.80–88.85, helping the rupee avoid a sharper slide even as global cues stayed risk-off.
How the defence played out
Dealers said the market opened with a mild gap-up in USD/INR amid firm U.S. yields and steady crude prices. Flows from importers kept bids alive, but sporadic dollar sales by PSU banks capped the move and nudged the pair back toward the mid-88.70s. The RBI also smoothed basis and forwards, traders added, with light activity in sell/buy swaps to keep premiums aligned with policy-rate expectations.
Options positioning reflected the stance: open interest built around the 88.75–89.00 strike corridor, with intraday gamma selling by market makers limiting large swings. “The message is familiar—allow trend, curb tantrums,” a head FX trader at a private bank remarked.
Why 88.80 matters
For much of the recent stretch, rupee price action has clustered around the 88.50–89.00 zone. The 88.80 mark has emerged as a tactical line in the sand—a level where authorities appear comfortable leaning against momentum without signalling a formal peg. A stable rupee helps:
- Anchor imported inflation, especially when crude edges higher,
- Smooth corporate hedging cycles before quarter-end cash flows, and
- Preserve bond market appetite ahead of large government borrowing weeks.
Macro backdrop
External headwinds remain: U.S. yields are elevated on sticky services inflation, the dollar index is firm, and oil is range-bound at relatively high levels. Locally, month-end importer demand and equity-related outflows create periodic pressure, while portfolio inflows into domestic debt offer a partial offset. Against that backdrop, the RBI’s strategy continues to be liquidity-aware intervention—using its reserves and derivative tools to reduce two-way noise rather than chase a particular spot print.
What this means for hedgers
- Importers: Consider layered hedging on upticks toward 88.80/89.00; short-dated forwards remain a practical tool when premiums are contained.
- Exporters: RBI supply can produce intraday dips; staggered sells closer to the 88.40–88.60 zone (if seen) protect receivables while keeping upside optionality via OTM calls.
- Treasury desks: Watch the cash–NDF basis during late U.S. hours; a widening basis tends to invite more smoothing by PSU banks at the Asia open.
What to watch next
- Oil and U.S. rates: A decisive move in Brent or the UST 10-year typically trumps micro-flows.
- Forwards premium curve: Sustained compression would imply ongoing sell/buy swaps, consistent with RBI volatility-control.
- Reserve data & liquidity ops: Weekly reserves and money-market operations (VRRR/SDF) will signal the sterilisation footprint of intervention.
- Options skew: A persistent put-heavy skew near 88.75 would suggest markets pricing continued intraday support.
The RBI’s steady hand at 88.80 reiterates a long-running playbook—let fundamentals speak but cap the tantrums. Unless global risk intensifies sharply, markets should expect tight, well-managed ranges and quick fades on overshoots, rather than a one-way, disorderly rupee.
