Rupee Logs Biggest Gain in Weeks After RBI Steps In — Can the Rally Hold?
The Indian rupee staged its strongest single-day rise in more than six weeks, buoyed by timely intervention from Reserve Bank of India and improved intraday sentiment in the forex market. The sharp move offered temporary relief to a currency that has been under pressure from global dollar strength, capital outflows, and fiscal concerns.
On February 2, the rupee gained about 42 paise against the US dollar, marking its biggest daily appreciation since mid-December, when it had rallied even more strongly in a single session. In percentage terms, the currency rose roughly 0.42 percent compared to the previous close — a notable move in the typically gradual-moving currency market.
For market participants, the rebound signaled that the central bank remains active and willing to smooth excessive volatility, especially near psychologically sensitive levels.
RBI’s Presence in the Market Calms Volatility
Forex traders widely attributed the rupee’s rebound to sustained dollar selling by state-owned banks, which are often seen as acting on behalf of the RBI. Such interventions are not always officially announced but are closely tracked by market participants through price action and liquidity patterns.
By early afternoon, the rupee had strengthened significantly from its opening levels. The move suggested that the central bank was keen to prevent the currency from weakening past key thresholds that could trigger speculative pressure.
Anil Kumar Bhansali of Finrex Treasury Advisors LLP captured the market mood, saying:
“Today, RBI was present in the market from the beginning and ensured again that 92 is not breached.”
This comment reflects a widely held belief in the market that the RBI informally defends certain levels to anchor expectations and prevent disorderly moves.
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Budget Signals Offer Reassurance but Not Immediate Relief
Currency markets were also digesting the broader implications of the Union Budget. While the Budget focused on growth and capital expenditure, it did not deliver a strong near-term positive trigger for the rupee.
Amit Pabari of CR Forex Advisors noted:
“For the rupee, the budget offered reassurance, not relief. Short-term pressure may persist, but the broader message of fiscal credibility and growth continuity keeps medium-term prospects constructive.”
In other words, the Budget did not dramatically improve the rupee’s outlook, but it also did not damage policy credibility. For currency markets, consistency and fiscal discipline often matter more than headline announcements.
Global and Rate Dynamics Still Pose Challenges
Despite the day’s rally, some global analysts remain cautious on the rupee’s trajectory. Michael Wan of MUFG Bank expects the rupee to underperform over time and flagged concerns around India’s fiscal path and borrowing needs.
He pointed out that the pace of fiscal consolidation is slower than some investors expected. A fiscal deficit around the mid-4 percent of GDP range, along with large gross and net borrowing requirements, means a heavy supply of government bonds.
Wan said:
“We also think India’s local currency rates will likely grind higher.”
Rising domestic yields can be a double-edged sword. While they may attract some foreign investors, they also reflect higher funding needs and can tighten financial conditions.
Bond Market Pressures Add Another Layer
Another concern for currency and rates markets is the growing borrowing by both the central and state governments. Analysts note that Indian bond markets are already absorbing significant issuance, including State Development Bonds.
When supply is heavy, yields tend to rise unless supported by liquidity. This is where expectations from the RBI come in again.
Wan added that the central bank may need to inject liquidity to cap yields or at least slow the pace of yield increases. Such actions can indirectly influence the rupee by shaping capital flows and rate differentials.
Here’s What Happened Today and Why Traders Reacted
Today’s currency move was driven by a combination of factors:
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Visible RBI-backed dollar selling
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Defence of key psychological levels
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Post-Budget positioning by traders
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Short-covering after recent rupee weakness
Forex traders reacted quickly because currency levels near record lows often attract speculative bets. When the central bank steps in, those bets can unwind fast, leading to sharp intraday gains.
What This Means for Investors and Portfolios
For equity investors, a stable rupee is generally supportive as it reduces imported inflation and currency-related uncertainty. It can also improve sentiment toward foreign flows into Indian markets.
For debt investors, the story is more nuanced. Higher borrowing and yield pressures mean bond markets will stay sensitive to policy signals and RBI liquidity actions.
For forex traders and corporates with dollar exposure, the key takeaway is that the RBI remains vigilant. While it may not target a specific level publicly, it appears willing to curb excessive volatility.
The broader outlook suggests that while short-term rebounds are possible, the rupee’s medium-term path will still depend on:
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Global dollar trends
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Oil prices
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Capital flows
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Fiscal discipline
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RBI policy actions
