The Reserve Bank of India (RBI) has recently intensified its activity in the offshore non-dilivable forward (NDF) market to keep the rupee stronger against the dollar. According to a report by Reuters, bankers believe that the US tariff has changed the purchase and sale of traders, which has increased the pressure on the rupee. Exporters are stopping their dollar sales, while importers are doing more hedging to avoid the risk of American tariff. Due to this, there is an imbalance in the demand and supply of dollars, which is a big reason for the weakening of the rupee.
Importers increasing hedging
Tariff’s uncertainty has changed the strategies of traders. Those who send goods abroad, they are no longer hurrying to sell the dollar. At the same time, those who ask for goods from abroad, they are buying dollars for the future to secure the expenses of their dollars. Due to this, the demand for dollars has increased, but the dollar supply in the market has reduced. This is directly affecting the price of the rupee.
RBI’s priority to control the market
According to a senior official of a private bank, RBI is now adopting a more flexible attitude in the market. Earlier, RBI used to try to keep the rupee stable at a particular exchange rate, but now it pays more attention to the market, there is not much ups and downs in the market. For example, when the rupee reached close to 88.40 against the dollar, the RBI tried to stop the rupee fall by selling dollars in the NDF market.
RBI active in both onshore and offshore markets
The currency merchant working in a Mumbai bank said that the NDF market often shows the presence of RBI, and this time it was seen the same. Apart from this, RBI has also been active in the onshore i.e. the spot market inside the country. Due to this, the price of the rupee has been avoided by a rapid decline or high surge.
Rupee prices reduced fluctuations
Analysts say that this strategy of RBI is showing impact. Market volatility has decreased and the volatility of one month’s currency, ie fluctuations, has now reached the lowest level of six months. This makes it clear that now the expectations about the price of rupee in the market are quite stable. This activism of RBI is proving to be important in strengthening the rupee.