RBI repeats intervention to steady the rupee
On Wednesday, the Reserve Bank of India stepped into the foreign exchange market again, mirroring its actions in October and November when it intervened aggressively on three occasions. The moves were aimed at disrupting persistent one-way pressure on the rupee and restoring balance to currency trading.
Why the central bank intervenes
- Manage volatility: Interventions are used to curb sudden, disorderly moves in the currency that could unsettle markets.
- Prevent speculative trends: Repeated one-directional pressure—either rapid depreciation or appreciation—can be driven by speculative flows; the central bank acts to counter that.
- Support macro stability: A stable rupee helps keep inflation, trade flows and monetary policy transmission on an even keel.
Impact on markets and participants
Such interventions typically calm spot and derivatives markets in the short term and reduce volatility. For businesses, a steadier rupee eases planning for importers and exporters. For investors, it means lower immediate currency risk, though policy actions don’t eliminate underlying economic drivers.
What to watch next
- Whether the central bank follows up with more interventions if one-way pressure returns.
- Global liquidity and interest rate moves, which influence currency flows into and out of India.
- Corporate hedging activity—firms may increase hedges if volatility looks likely to persist.
Short-term relief is likely after such interventions, but businesses and investors should monitor broader economic signals and use hedging tools rather than relying solely on central-bank action.