India cenbank likely steps in as trade deficit woes push rupee to record low

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India cenbank likely steps in as trade deficit woes push rupee to record low

By Nimesh Vora

MUMBAI (Reuters) – The Reserve Bank of India (RBI) likely intervened to support the rupee after the currency slipped to an all-time low on Tuesday amid worries over a sizeable widening of the Asian nation’s trade deficit.

The rupee, having dropped to a record low of 84.92, was last at 84.9125 to the dollar. The RBI was likely on offer on the dollar/rupee pair via state-run banks at 84.92-84.93 levels, per traders.

“It’s what they (RBI) do. They come in at a level and then hold it through the rest of the session,” a currency trader at a bank said.

“Highly unlikely we will move higher (on the dollar/rupee) from here, for today at least.”

Just before forex markets shut on Monday, data released by India’s commerce ministry showed that the country’s trade deficit widened to record levels, driven by higher gold imports and weak exports.

India’s merchandise exports in November fell 4.9% year-on-year to $32.11 billion, while imports surged by more than 27% to $69.95 billion.

The RBI’s strategy of not wanting to allow the rupee to weaken, via regular intervention, was critically examined in the wake of the data.

“The widening trade deficit calls into question the RBI’s FX intervention strategy, which has been aimed at capping INR depreciation pressures,” Nomura said in a note.

As such, allowing the rupee to weaken “somewhat” can be an automatic stabiliser, which can cool imports, it said.

The RBI’s FX intervention has been substantial over the last few months as equity outflows, slowing economic growth and dollar strength have hurt the rupee.

The FX intervention alongside revaluation loss has resulted in India’s forex reserves falling by nearly $50 billion in the current quarter.

(Reporting by Nimesh Vora; Editing by Mrigank Dhaniwala)

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