Reserve Bank of India FX intervention to support the rupee

RBI's Intervention Supports the Rupee

USD/INR plunged after the Reserve Bank of India intervened by selling USD/INR in the forex market, leading to a roughly 1% increase in the rupee. Recently, the rupee traded at record lows as a deteriorating global risk backdrop worsened persistent flow imbalances weighing on the currency. The weaker USD on Tuesday did not translate into a stronger INR, which appears to have triggered today's RBI intervention.

Context of Ongoing Liquidity Issues

Market participants noted that the recent movements reflect flow-driven pressure rather than panic. There is a persistent imbalance between dollar demand and supply, compounded by recurring fixed-rate buying and portfolio outflows acting as key support for the dollar. Concerns over further rupee weakness have kept importer hedging demand firm, while exporter dollar selling has been more muted, as many are waiting for better rates.

Market Reactions and Future Outlook

Exporters are holding back from selling at low rupee levels in hopes of more favorable rates, making the rupee sensitive to even slight increases in dollar demand. Additionally, portfolio flows continue to heavily weigh on the currency, overshadowing India's solid growth and improving fundamentals. Without a reversal in portfolio flows or a clear positive trade-related catalyst, the rupee is likely to remain under pressure, and a test of fresh record lows cannot be ruled out despite today's intervention efforts.