Rupee rebounds over 1% as RBI intervention, dollar unwinding lift sentiment

The rupee recovered sharply against the US dollar on Wednesday (December 17), rising more than 1% during the session, after the Reserve Bank of India (RBI) intervened in the foreign exchange market to curb volatility following four straight sessions of all-time lows.

The local currency opened marginally weaker at 91.07 per dollar compared with Tuesday’s (December 16's) close of 91.03, but quickly reversed course.

It strengthened to around 90.25 in early trade.

Dealers said state-run banks sold dollars, likely on behalf of the Reserve Bank of India (RBI), while traders also unwound long dollar positions after crude prices cooled.

“RBI was selling dollars, but the recovery is only partly due to intervention,” dealers said. “The market was also veering away from the 91-per-dollar level, with traders cutting long dollar positions.”

The rupee had weakened to all-time lows over the previous four sessions, pressured by sustained foreign portfolio outflows and uncertainty around India–US trade negotiations. However, market participants said resistance near 91 per dollar and reduced dollar demand helped stabilise the currency on Wednesday (December 16).

KN Dey, senior forex expert,

said thin year-end liquidity continues to amplify intraday moves.

“Towards the end of the year, markets tend to be thin, which increases volatility. Some stability could emerge from the second half of January if positive flows return,” he said.

Kanika Pasricha, chief economic adviser at Union Bank of India, said the rupee’s move beyond 90 appeared excessive. “We had expected the rupee to move towards 89–90 this year. Levels beyond 90 look like an overshoot. RBI’s presence has helped manage volatility, and by March the currency is likely to settle back towards fundamentally prudent levels of 90 or below,” she said.

Neeraj Seth, founder and chief investment officer at 3R Investment Management, said the recent weakness reflected a combination of weak capital flows and prolonged trade-related uncertainty.

“Flows have not been supportive in recent months, and delays in the trade deal have added to fatigue. At the same time, the RBI seems more comfortable allowing greater market determination rather than tightly managing volatility,” he said.

Trade-related uncertainty has remained in focus despite Commerce Secretary Rajesh Agrawal stating earlier this week that India is close to finalising the initial framework of a tariff-related agreement with the United States. Strong export growth in November has offered India some leverage in negotiations, easing pressure for a quick deal.

Seth said foreign portfolio outflows could moderate from January if sentiment stabilises at current equity and currency levels, followed by gradual stabilisation and a possible return of inflows, provided domestic growth and earnings improve.

Economists said the rupee’s depreciation does not yet pose macroeconomic risks. Upasna Bhardwaj, chief economist at Kotak Mahindra Bank, said subdued inflation allows the RBI to tolerate some currency weakness over the next six to nine months. She added that while the central bank continues to intervene in the foreign exchange market, it is doing so less aggressively than earlier, which is appropriate given prevailing conditions.

-With Reuters inputs