By Jaspreet Kalra and Nimesh Vora
MUMBAI (Reuters) – India’s central bank has asked state and private lenders to refrain from heavy bets on the rupee in a bid to support the currency that has been teetering at low levels for the past three trading sessions, four sources said. .
The Reserve Bank of India (RBI) informally conveyed the instructions to bankers through phone calls on Monday, putting the rupee at risk of breaching its record low of 83.9850 per US dollar, the sources said.
The RBI has asked banks to avoid big bets on the rupee and the instructions are a form of “verbal intervention” by the central bank, a senior banker at a private bank said.
The news has not been reported before.
The sources declined to be identified because they are not authorized to speak to the media. The RBI did not immediately respond to an email seeking comment. Reuters was unable to obtain the complete list of banks the RBI called.
The central bank occasionally steps in to support the rupee through moral suasion and had last done something similar in early August.
The rupee was under pressure due to strong portfolio outflows, higher oil prices and the strength of the dollar, after US economic data dashed hopes for major interest rate cuts by the Federal Reserve.
Overseas investors have pulled about $4 billion from Indian shares in the past four sessions as prices surged to their highest levels since August, fueled by worries about a wider conflict in the Middle East.
But the “central bank has made its intentions clear regarding defending 84 and is unlikely to allow a breach of it anytime soon,” a senior banker at a state-owned bank said, referring to the central bank’s instructions on Monday.
The RBI has also intervened in the non-deliverable forwards and local spot market, traders said.
The central bank’s defense has led to the rupee falling 0.3% over the past week, while its Asian counterparts are down between 0.6 and 2.7% over the same period.
“We expect the RBI to remain a key player and limit any sharp moves in the INR in either direction,” MUFG Bank said in a note on Monday.
