RBI Likely Intervening In NDF Market As Rupee Nears Record Low; What Should Investors Know

The Indian rupee reached to near its record low against the US dollar on Friday. The rupee has been under pressure this week, and to refrain the currency from hitting all-time low levels it is being said that RBI has stepped up its intervention in the non-deliverable forward (NDF). Against the dollar, the rupee touched an intraday low of 83.1375 which was slightly shy of the record low of 83.29 per dollar that was struck in October 2022. The dollar has gained traction against a basket of currencies including Asian ones.

Four bankers told Reuters on Thursday that the Reserve Bank of India has been frequently intervening in the non-deliverable forward (NDF) market to make sure that the rupee does not drop to a record low.

A head of treasury at a private sector bank revealed to Reuters that RBI intervened on NDF in the morning (before local over-the-counter, OTC, markets opened) and it did the same yesterday. The idea behind the intervention is to set the tone for the day and to let speculators know that they are there and are watching.

At the time of writing, the rupee traded at 83.1150 against the US dollar. The local unit ranged from 83.1375 to 83.2125 against the greenback.

In the previous session, the rupee stood at 83.2125 per dollar.

In its daily currency report, on Friday, IIFL Securities said, "the Reserve Bank of India (RBI) is likely engaging in rupee forwards transactions through public sector banks, aiming to manage the exchange rate. The RBI has been active in conducting sell/buy swaps, particularly for value dates spanning from September 11 to September 15, and across nearby deliveries."

Further, the brokerage highlighted that t India's external debt displayed some interesting trends, decreasing to 18.9% of GDP
by March 2023 from 20% the previous year. However, in terms of absolute figures, external debt saw a slight increase, rising by 0.9% to $624.7 billion in March 2023 from $619.1 billion the previous year. Additionally, India's service sector activity exhibited a dip in August, dropping to 60.1 from the previous month's 62.3, despite the country experiencing its most substantial growth in new export businesses in nine years.

From a technical perspective, IIFL Securities said that the market is currently displaying signs of fresh buying, with open interest increasing by 8.46% and settling at 3,260,596. In terms of support, USD/INR is expected to find it at 83.18, with the possibility of testing 83.09 if it dips below this level. On the upside, resistance is anticipated at 83.32, and a move above this could lead to testing at 83.37.

In the week that ended on August 25, 2023, India's total forex reserves dipped by $30 million to $594.858 billion compared to the prior week. Foreign currency assets (FCA), the biggest indicator of reserves, also declined by $538 million to $527.249 billion in the August 25 week. It was gold reserves which surged by $530 million in the same week to $44.354 billion, minimised the downfall in forex reserves.

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