Written by Jaspreet Kalra and Nimesh Vora
MUMBAI (Reuters) – India’s central bank has asked government and private lenders to refrain from betting heavily against the rupee in a bid to support the currency that has been hovering near record lows over the past three trading sessions, four sources said. .
The Reserve Bank of India (RBI) informally informed bankers of the instructions via phone calls on Monday with the rupee at risk of breaching its record low of 83.9850 per US dollar, the sources said.
The Reserve Bank of India has asked banks to avoid big bets against the rupee, and the instructions are a form of “verbal intervention” by the central bank, a senior banker at a private bank said.
The news was not published before.
The sources requested anonymity because they are not authorized to speak to the media. The Reserve Bank of India did not immediately respond to an email seeking comment. Reuters was unable to confirm the complete list of banks contacted by the Reserve Bank of India.
The central bank occasionally intervenes to prop up the rupee through moral suasion, and last did something similar in early August.
The rupee was under pressure due to increased portfolio outflows, rising oil prices and a strong dollar after US economic data dampened hopes for deep interest rate cuts by the Federal Reserve.
Foreign investors withdrew about $4 billion from Indian stocks over the past four sessions while prices rose to their highest levels since August, affected by fears of a broader conflict in the Middle East.
“The central bank has made clear its intentions regarding defending 84 and is unlikely to allow it to be hacked soon,” a senior banker at a state-run bank said, referring to the central bank’s instructions on Monday.
The Reserve Bank of India also intervened in non-deliverable futures and the domestic spot market, traders said.
The central bank’s defense means that the rupee fell by 0.3% over the past week, while its Asian counterparts fell by 0.6 to 2.7% in the same time period.
“We expect RBI to remain an important player and limit any sharp movements in the Indian rupee in both directions,” MUFG Bank said in a note on Monday.