Traders see central bank stepping in to steady South Asian currency
Market participants say the central bank likely intervened in both the spot and non-deliverable forwards (NDF) markets to support the South Asian currency after recent volatility. The move appears aimed at calming currency swings and restoring confidence among importers, exporters and foreign investors.
What traders noticed
- Unusual flows: Traders reported heavier-than-normal selling of dollars in the spot market and counter flows in NDFs, suggesting official participation.
- Price stabilization: The currency halted a rapid slide and traded in a narrower range after the suspected intervention.
- Liquidity signals: Market-makers said liquidity improved briefly, common when central banks step in to ease sharp moves.
How intervention likely worked
Intervention can take several forms. In the spot market, the central bank may sell foreign reserves to buy the local currency directly, raising demand and pushing the exchange rate up. In the NDF market — where contracts settle in foreign currency outside the home jurisdiction — the central bank or its agents might execute offsetting trades to influence forward pricing and market expectations.
Why the central bank might act
- To prevent disorderly depreciation that could fuel inflation and raise import costs.
- To protect investor confidence and avoid sudden capital outflows.
- To keep financial conditions stable ahead of key economic reports or policy meetings.
Market reaction and what to watch next
Short-term calm often follows intervention, but effects can be temporary if underlying pressures — like weak reserves or external shocks — persist. Traders will watch:
- Foreign reserve levels and central bank statements for confirmation of actions.
- Forward spreads and NDF pricing for signs of sustained confidence.
- Macroeconomic updates that could change currency direction, such as trade data or interest-rate signals.
For businesses and investors, the key takeaway is that official support can buy time. But lasting stability typically depends on broader economic fundamentals and policy clarity.