Asian currencies bolster rupee amid dollar sales

The Indian rupee gained strength on Wednesday, following the trend of other regional currencies. Dollar-rupee forward premiums also decreased due to potential dollar-rupee buy/sell swaps by the Reserve Bank of India (RBI).

The rupee ended the day at 86.3225 against the US dollar, gaining almost 0.3 per cent. It faced initial pressure but received support from the Indian central bank’s intervention. Later the day, foreign banks selling dollars helped boost the rupee.

The RBI may have also engaged in dollar-rupee buy/sell swaps, leading to a decrease in forward premiums, traders noted. The 1-year dollar-rupee implied yield fell to 2.27 per cent, the lowest since July last year.

The central bank has regularly been carrying out these swaps to control the effects of its spot market interventions on the cash in the banking system.

Dollar-selling interventions reduce INR liquidity, but the impact can be mitigated by selling dollars for a future date using buy/sell swaps. Additionally, most Asian currencies strengthened, supporting the rupee.

Attribution: Reuters

Subediting: Y.Yasser