The rupee slumped 9 paise to a record low of 90.87 against the US dollar in early trade on Tuesday. The Central Bank replied harshly to the sudden decline and intervened aggressively in currency markets on Wednesday, selling dollars to prop up the rupee, bankers said.
The one-way decline in the currency echoed heavy results as the fall led to decline in global crude oil prices capped further losses in the domestic unit, according to forex traders.
The rupee rallied to an intraday high of 89.75 against the U.S. dollar on the interbank order matching system, from near 91.00 seen prior to the intervention. It was last trading at 90.28.
"At about 91, the rupee appears overly depreciated. The central bank had stayed relatively light on FX management in December (until now)," said VRC Reddy, treasury head at Karur Vysya Bank.
The RBI on Wednesday intervened as earlier recorded in October and November, when it stepped aggressively on three occasions to disrupt persistent one-way moves in the rupee.
The RBI sold dollars heavily in both the spot and non-deliverable forward (NDF) markets, triggering intraday reversals.
The intervention followed a more than 1 per cent slide over the previous four sessions, during which the rupee hit fresh lifetime lows each day.
The period is marked by dollar demand reducing the price of the rupee, dismantling the economical graph of the country. Given the rupee's recent price action, the risk of a decisive RBI intervention was high, a currency trader at a bank said.
Reuters had reported on Tuesday that bankers had begun flagging the risk of a repeat of the RBI's heavy-handed intervention.
Prior to the RBI's action on Wednesday, the rupee had underperformed its Asian peers, weakening 1.8 per cent in December through Tuesday, while most regional currencies were flat or slightly higher.
(With inputs from agencies)
