RBI asks banks to cap bets against rupee amid currency struggles

RBI urges: The Reserve Bank of India has counselled the state-owned and private lenders to refrain from major bets on the currency as it seeks to stabilise the Indian rupee hovering near record lows. The informal order comes after reports that the rupee is standing on the edge of breaching its record low of 83.9850 per US dollar.

Sources in the know say RBI delivered these instructions over the phone earlier this week, and this is seen as some form of "oral intervention" under the deliberations after the period of heavy market volatility where the value of the rupee has to be kept in check. It is well known that RBI has always been a backup support for the rupee, and similar actions have recently been recorded in early August.

The rupee has faced many issues above which a tide of portfolio outflows this quarter as oil prices climb and US currency strengthens, particularly following the latest statistics that have somewhat doused hopes for the Fed's aggressive cut in rates. Over the past four trading days, overseas investors have taken $4 billion out of Indian equities, data recently revealed.

Brent oil prices surged to an eight-month high on simmering tensions in the Middle East, boosting the benchmark. As a consequence, market analysts feel RBI would like to defend the vital threshold of 84 against the dollar; though a senior banker feels it may not let it break this threshold in the near term.

Interventions on the non-deliverable forwards and local spot market by RBI have also been mentioned by traders to stabilise the currency. Now that the rupee has plummeted by 0.3 per cent, analysts at MUFG Bank believe that RBI will continue to remain the prime player in checking the sharp movements of the currency.

In the current situation, it is pretty clear that initiatory actions by the RBI provide stability to the currency when global economic pressures are prevailing.