Rupee rally slows as RBI steps back

The Indian rupee saw a rally over the last two days, despite a stronger US dollar and a decline in other emerging market (EM) currencies. However, the momentum has faded as the Reserve Bank of India (RBI) appears to have stepped back from aggressive intervention.

At one point, the rupee strengthened to 86.32 per dollar, a sharp recovery from the low of 87.95 just 72 hours ago. This sharp movement led to speculation that the RBI had intervened heavily to counter excessive speculation in the forex market, detering speculators from betting against the rupee.

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With speculation now cooling, the RBI appears to have eased its intervention, allowing the rupee to weaken again to 86.83, marking a nearly 50 paise decline.

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Going forward, the market will closely watch whether the RBI continues to let the rupee adjust naturally or steps in again if volatility resurfaces.

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