The Indian rupee has breached the 72 level against the US dollar, closing at 72.00 on Thursday from its previous close of 71.7750, though it recovered from a record low of 72.11 during intraday trading. According to Reuters, the currency has fallen nearly 3% in the last 15 trading sessions and is now Asia's worst performing currency after losing nearly 12% this year. The sharp fall has surprised markets and prompted exporters to postpone dollar sales while demand has risen from importers and firms looking to hedge. As per Reuters, dealers estimate the RBI sold about $1 billion on Thursday, which they described as "not much" given the swift fall, with one senior forex analyst at a state-run bank noting it was "just mild selling to smoothen out the volatility."
The Reserve Bank of India has implemented strict measures to control dollar purchases by state-run oil refiners, asking them to curb spot dollar buying and access a special credit line for foreign exchange needs. According to TradingView News, the central bank has urged major refiners to route their daily dollar purchases through State Bank of India instead of multiple banks, with the facility available to Indian Oil Corp, Hindustan Petroleum Corp and Bharat Petroleum Corp. These refiners together control about half of India's 5.2 million barrels per day of refining capacity, making them major dollar buyers for oil imports. However, market analysts note a significant difference in RBI intervention approach - the central bank sold $24 billion during the span when the rupee fell from 65 to 69, while it has sold just about $5 billion when it moved from 70 to 72. As Edelweiss Securities head Sajal Gupta noted, "The key difference between India and other Asians is the pace of fall in the currency and shallow intervention."
Indian banks have implemented strict documentation requirements for dollar forward transactions since the recent currency turbulence and regulatory changes. According to The Economic Times, most banks are now demanding proper documents as evidence of actual import and export orders from companies buying and selling dollars in the forward market. This practice, which was prevalent before 2020, has been reintroduced as banks take extra precautions to avoid FEMA violations amid a dollar crunch. The enhanced documentation requirements follow recent currency volatility and rapid-fire regulations implemented by the RBI to tame the rupee.
Despite the rupee's sharp fall, government officials have shown limited concern about the currency's rapid depreciation. Finance Minister Arun Jaitley said late on Wednesday there was no need for a panicked reaction to the fall, while Commerce Secretary Anup Wadhawan said the slide was due to global developments and was helping India's exports, which rose 14.32% in July to $25.77 billion from a year earlier. However, market analysts remain puzzled by the government's signals, with one forex trader noting it was "quite puzzling to the markets what the government and RBI want on the rupee." The next Fibonacci technical level for the rupee is estimated at 72.50-72.80 against the dollar, according to forex analysts.
The RBI's crisis-era measures have shown immediate results, with the rupee recovering about 2% from its record low following the bank's interventions. As reported by TradingView News, the rupee was last quoted at 93.20 per dollar on Thursday. One-month implied volatility has cooled to about 4.9%, down from over 8% at the peak of worries over the Iran war and the RBI's actions. The rupee's recovery has been supported by Iran ceasefire optimism, the resulting pullback in oil prices, and an improvement in risk appetite. However, further headwinds including state elections due in 2018, domestic inflation pressure, a widening current account deficit and expected rate hikes by the US Federal Reserve could aggravate the rupee's fall compared to other Asian currencies, dealers said.
