The Indian rupee traded at 95.25 per dollar on Friday, showing little change. The currency is on track for its best month since February. Traders said the Reserve Bank of India used smaller interventions recently. One trader noted, "The smaller interventions are also likely an impact of moving oil demand."
The Indian rupee traded little change on Friday, on course for its biggest monthly gain since February on the back of regulatory measures rolled out to support the currency by curbing dollar demand.
The currency was at 95.25 per dollar as of 11:30 a.m. IST, near its previous close at 95.26.
The rupee is up about 0.6 per cent in October, putting it on track for its best month since the announcement of a US-India trade agreement breakthrough in February that boosted it before the breakout of the Iran war hit the currency from March onward.
The Reserve Bank of India stepped up policy support for the rupee earlier this month by re-routing oil-linked dollar demand away from the spot market and making it more expensive to buy protection against rupee weakness for large current account exposures and for banks hedging their own assets and liabilities.
On the day, traders pointed to muted flows, with speculative interest also limited heading into the weekend even as elevated oil prices kept the bias to the negative side.
MILDER INTERVENTIONS
Over recent sessions, the rupee has drawn support from market interventions by the Reserve Bank of India that traders have characterised as smaller than those seen in past months.
Three other FX traders at Mumbai-based lenders said that the RBI's intention appears to be to signal to the market its limited tolerance for sharp rupee weakness while also limiting the drawdown in foreign exchange reserves.
India's FX reserves have declined about $65 billion since hitting a record high of $785 billion in late August. Reserve data for the week ended October 23 is due later on Friday.
Most analysts see India's reserves position as strong at the moment, but analysts at BofA Global Research have also flagged that persistent FX pressure may raise the reliance on monetary policy to support the rupee going forward.
"The smaller interventions are also likely an impact of moving oil demand away from the market, removing the need for heavy action," one of the three Mumbai-based traders said.