By Nimesh Vora
MUMBAI (Reuters) – The Indian rupee remained near a lifetime low on Thursday despite intervention from the country’s central bank, with traders and analysts expecting continued pressure on the currency due to a shrinking balance of payments surplus.
The rupee was trading at $83.9750 against the US dollar, near its lifetime low, and managed to avoid a dip beyond 84, largely thanks to the intervention of the Reserve Bank of India.
The RBI has regularly intervened in the forex markets on both sides, keeping the rupee in a narrow range for extended periods. The rupee’s three-month implied volatility is among the lowest among major Asian currencies.
The rupee survived a rally in Asian currencies last month, boosted by growing certainty that the Federal Reserve is likely to begin its rate-cutting cycle.
The depreciation pressure the rupee has faced in recent months is due to India’s shrinking balance of payments (BoP), says Gaura Sen Gupta, economist at IDFC First sofa (NASDAQ:), said.
The BoP position can be measured by the RBI’s net intervention in the forex markets, she said.
The central bank has net sold more than $2 billion from April to August 25 this year, compared with net buying of $19 billion from April to August last year, according to central bank data and IDFC calculations.
India had a balance of payments surplus of $63.7 billion in the last fiscal, which will fall to $50 billion in the current fiscal, according to IDFC.
“From the recent price action (on the dollar/rupee), it is clear that the supply and demand dynamics have changed in favor of the former,” said a finance ministry official at a bank.
“This is why the rupee has been struggling quite a bit despite the weaker dollar.”
