Why did Rupee fall despite RBI's steps to force dollar sales by banks?

The dollar-rupee pair defied expectations on Monday. The dollar opened weaker at 93.58, down from Friday’s close of 94.81, and had even touched 93.10 in pre-market trading. However, after 9 a.m., the dollar regained strength while the rupee weakened.

Here’s what the market is citing as reasons:

1. Some dealers said there was big demand for dollars from oil companies to buy Russian oil. They referred to the 30-day waiver issued by the US on March 6, allowing Indian refiners to purchase Russian crude oil stranded at sea. The waiver expires April 5, hence the rush to buy, they guess.


2. More generally, dealers noted there is all-round demand for dollars with crude rising to $115/bbl and foreign funds pulling out around $500 million per day from stocks. The sight of the dollar at 93.58 was manna from heaven for these entities, and they bought sackfuls.


3. The RBI move to force dollar sales by banks just came on an unfortunate day: the dollar index had strengthened to 100.5 from 99.9 last week; many Asian currencies like the won and the ringgit were down 0.5%; and perhaps without the RBI steps, the rupee would also have fallen 0.5% to 95.30.

Bankers vented angst. However, their losses due to the forced dollar sales were less than they feared over the weekend. Dealers' guess banks must have lost around 40–50 paise per dollar, with higher losses in

the longer-tenor forwards.

Many veteran market watchers say the RBI should have known it can't win against a tsunami of global bearishness, with the West Asia war showing no signs of abating in terms of firepower or fiery words. Yet others say the RBI probably wasn't looking to defend any level but may have simply wanted someone else's dollars (in this case, banks' dollars) to fill the relentless demand and save its own reserves for a bit.

All told, it was a day of high drama and many regrets.