Rupee Surges Most in Six Months as Central Bank Moves to Steady Currency

Deep News
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The Indian rupee jumped the most in six months after the Reserve Bank of India rolled out some of its most forceful measures since the 2013 "taper tantrum" to shore up the local currency.

The rupee rose 1% to 95.7575 against the US dollar on Monday, its biggest gain since April. Bonds fell, with the benchmark 10-year Indian government bond yield rising as much as 7 basis points to 7.37%, the highest level since October 2023.

The rupee has depreciated more than 6% this year, and the central bank is making it harder to bet against the currency. On Saturday, after the rupee approached a record low of 97 against the dollar, the bank announced a series of measures to stabilize the exchange rate, including setting up a dedicated window to meet the dollar demand of state-owned oil companies and imposing reserve requirements on certain foreign exchange derivative transactions.

Although these steps have given the rupee some breathing room, sustaining the rebound will not be easy, because elevated oil prices, persistent foreign capital outflows and a widening current account deficit continue to weigh on the currency. The central bank raised interest rates last week and signaled it would not rule out further monetary tightening. According to traders familiar with the matter, the central bank intervened again in the onshore market on Monday to support the rupee.

"These are just temporary fixes, not structural solutions," said Madhavi Arora, chief economist at Emkay Global Financial Services Ltd. "On the surface, these measures should curb speculative positions, raise the cost of arbitrage, tighten bank liquidity and provide some short-term support for the rupee."

The central bank has taken multiple steps to boost its foreign exchange reserves. Its overseas diaspora deposit program raised a record $133 billion, bringing the bank's foreign exchange reserves to nearly $800 billion in early September. But since then, reserves have fallen by $51 billion over the past four weeks as it defended the local currency.

After the central bank acted to support the local currency, the Indian rupee rose about 1% against the US dollar on Monday, leading gains among Asian currencies. The rupee is one of the worst-performing currencies in Asia this year. Central bank Governor Sanjay Malhotra has said that by some measures the rupee is undervalued and that short-term market volatility can be irrational.

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