Dealers said the central bank intervened around 58.90 levels and sold dollars. The local currency, which hit an all-time low of 58.98 earlier in the day, then recovered around 50 paise to close at 58.4, still down nearly half-a-percent from the previous close.
On Monday, the rupee had registered an all-time low of 58.15 to the dollar, but an overnight strengthening of the dollar triggered by a change in outlook for US credit ratings by Standard & Poor’s from negative to stable pushed it to fresh lows.
The dollar index, as measured against six major currencies, jumped as high as 81.75 from around 81.65 on Tuesday.
With this, the rupee has depreciated 2.33% in just two days and 3.34% since the start of this month, mainly because of foreign fund outflows from the debt markets and a globally stronger dollar.
The central bank took stock of the nature of the dollar demand coming from foreign banks before the intervention, dealers said.
“The checks are typically to see whether the demand is genuine or if there are any liquidity issues,” said the treasury head of a foreign bank.
Interestingly, RBI’s forex intervention coincided with the government’s verbal intervention, pulling the rupee from record lows.
Raghuram Rajan, chief economic advisor to the government, said during the day that the local currency was undervalued from a real effective exchange rate (REER) perspective and that the government did not like such high volatility. “To the extent that the REER in 2004-05 is a measure of the exchange rate consistent with balance, we have now crossed into territory where the exchange rate is undervalued.”
Also, the Securities and Exchange Board of India and RBI are closely watching the rupee and will take necessary actions, said Rajan.
Economic affairs secretary Arvind Mayaram also said the rupee fall was a temporary phenomenon and should correct in the next 3-4 days. He attributed the slide to correction of unhedged positions and said that though the current account deficit remained bothersome, the steps taken on curbing gold imports were showing result.
The officials said the government is contemplating reintroducing bonds for non-resident Indians in order to attract dollar inflows.
Analysts, too, do not expect the rupee to fall much further from here.
Abhishek Goenka, founder & CEO of India Forex Advisors, said that technically, rupee has taken a resistance near 59 per dollar levels. “It is likely to see a short-lived correction,” he said.
Anindya Banerjee, currency analyst at Kotak Securities, sees the currency in the 57.50-59 range, “as recent spate of depreciation has been too fast and a consolidation is warranted ahead of the US Fed meeting on June 19.”