By Nimesh Vora
MUMBAI(Reuters) -The Reserve Bank of India is sticking to its defence of the 88.80 level, flattening rupee swings through interventions while the U.S. dollar powers higher against its major peers and Asian currencies.
The rupee was flat at 88.7725 to the dollar at 10:55 a.m. in Mumbai, moving in a narrow two-paisa band — a pattern that’s repeated over the past few sessions with the central bank keeping volatility pinned down.
Bankers note that the RBI has been actively leaning against the dollar near the 88.80 mark, intervening regularly in the non-deliverable forward market and the local spot market through state-run banks.
The RBI is using “a firm hand” and signalling its discomfort with rupee losses beyond the current level, said a currency trader at a Mumbai-based bank.
“This staunch defence is flattening volatility, which in some ways offers comfort on the rupee that may be misleading,” the trader said.
Bankers warn that extended periods of subdued volatility can discourage hedging, leaving companies more exposed when the rupee breaks out.
The RBI’s hand has crushed rupee volatility, with the 10-day realised measure dropping below 2% and the one-month implied gauge near its lowest level this year.
The rupee’s quiet session on Wednesday came despite a rally in the dollar index – driven largely by the yen’s slump – and weakness across other Asian currencies.
The yen was trading at its weakest since February against the dollar with investors assessing the policy stance of Japan’s next prime minister, Sanae Takaichi.
(Reporting by Nimesh Vora; Editing by Sonia Cheema and Harikrishnan Nair)
