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Indian Rupee Rallies 2% in Best Week in Seven Months on Policy Support
The Indian rupee posted its largest weekly gain in seven months, rallying 2% against the U.S. dollar as policymakers implemented a series of measures to defend the currency. The rupee closed at 94.96 per dollar on Friday, recovering from its approach to the record low of 96.96 reached last week.
Authorities Intervene to Stem Decline
The currency's rebound was driven by several official actions designed to curb dollar demand and make it more expensive to bet against the rupee. According to the report, these measures included redirecting U.S. dollar demand from oil companies away from the open market.
In a significant move to curtail speculation, authorities also slashed the limit for dollar purchases without underlying documentation by 95% to $5 million. This makes it more difficult for market participants to take large unhedged positions against the currency.
Economic Headwinds and Investor Concerns
AdDespite the intervention-led recovery, underlying economic challenges continue to pose a risk. India's merchandise trade deficit widened to $30.21 billion in September from $26.8 billion in August, signaling persistent pressure on the country's external account.
The Reserve Bank of India has reportedly used about half of the more than $140 billion raised through special measures to bolster its foreign exchange reserves. The central bank’s net forward dollar liabilities stood at $200 billion at the end of August.
Market Outlook
While the policy actions provided short-term relief, some investors have expressed concern that frequent changes to foreign exchange rules could reduce policy predictability and fragment market liquidity. Analysts cited in the report suggest that a sustainable turnaround for the rupee will depend on an easing of fundamental economic pressures rather than on continued policy intervention.
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