MUMBAI, Mar 5 (Reuters) - India's central bank on Thursday reverted to a strategy it has used before to support the rupee, forcefully intervening before the local spot market opens to lift the Asian currency after it slipped to an all-time low amid a surge in crude prices.
The rupee rose 0.64% at open to 91.57 per U.S. dollar following the Reserve Bank of India's intervention, faring significantly better than pre-market indications that had pointed to an opening of around 92.10 to 92.15.
On the interbank order-matching system, the currency had rallied to a high of 91.08 before usual market open, reflecting the scale of the central bank’s intervention.
Bankers said the central bank sold dollars aggressively through at least two state-run banks, repeatedly hitting dollar bids on the interbank order-matching system with little regard for price levels.
Market participants said the intervention bore the hallmarks of a strategy the RBI has employed when speculative pressure on the currency intensifies or the currency risks slipping into a one-sided depreciation cycle.
By stepping in forcefully ahead of the market open, the central bank is able to reset market expectations and discourage momentum-driven bets against the currency, traders said.
Such intervention can have an outsized impact on price moves because liquidity is relatively thin before markets open, a currency trader at a private sector bank said.
The trader, however, pointed out that the impact of such heavy intervention typically wears off in a few sessions with market flows ultimately dictating the rupee’s direction.
The aggressive intervention by the RBI came a day after the rupee slipped to an all-time low of 92.3050 to the dollar.
The currency had fallen 1.4% over the previous two days, pressured by the jump in oil prices on concerns that the widening Middle East conflict could disrupt supplies. Brent crude has soared 15.5% this week to $83.78.
Oil price shocks tend to have an outsized impact on India, which imports more than 80% of its crude needs.
Reporting by Nimesh Vora; Editing by Mrigank Dhaniwala
Source: Reuters