The Indian Rupee Defies Market Dynamics: Stability Thanks to Central Bank Intervention

The Indian rupee shows remarkable stability, despite the global financial markets being characterized by uncertainty. Experts attribute this primarily to the decisive intervention by the Reserve Bank of India, which continuously sells U.S. dollars to support the domestic currency and maintain its low volatility. While Asian currencies experienced significant fluctuations in October, influenced by speculative markets assessing a higher probability of a Donald Trump election victory, the rupee managed to withstand major movements. The exchange rate of the Indian rupee remained largely unchanged at 84.0825 against the U.S. dollar. In contrast, the Chinese offshore yuan recorded a 2.5-month low, and other Asian currencies fell by 3% to 5%. A notable challenge for the rupee is the massive capital outflow from Indian stocks. Nearly 11 billion dollars were withdrawn by foreign investors in October, a marked reversal from the 7 billion dollars that were still invested in September. Anil Bhansali from Finrex Treasury Advisors emphasizes that the central bank is required to provide sufficient dollars to offset the declining capital inflows. He advises exporters to carefully monitor the exchange rate developments, while recommending importers take advantage of favorable opportunities to hedge the dollar-rupee pair. Despite the turbulence, the Indian currency is characterized by low volatility; the one-month volatility remains below 1%, which significantly sets it apart from its Asian counterparts. Neither the rising dollar index nor the growing U.S. Treasury yields have been able to exert a significant influence on the rupee so far.