While the South Asian currency was protected by the central bank’s probable intervention on Friday, the Indian rupee fell this week as the crisis between India and Pakistan worsened, damaging local stocks and sovereign bonds.
At 85.37 against the US dollar, the rupee ended the day higher. Before the Reserve Bank of India intervened to stabilize the rupee, traders said it had dropped to a low of 85.8425, which was over one-month below its peak. Over the course of the week, the currency fell 0.9%.
With both nations accusing one another of initiating fresh military assaults on Friday, utilizing drones and artillery for the third day in the bloodiest combat in almost thirty years, the war between India and Pakistan has intensified.
In a note dated May 9, Michael Wan, senior currency analyst at MUFG, stated, “At this time, we believe that there is a fundamental incentive on both India and Pakistan to avoid substantial escalation over the medium-term.”
“With geopolitical conflicts, it is also important to be humble and say that there is much we do not know,” said the note.
As the rupee faced a steep loss over the past two days, the attitude among Indian foreign currency dealers changed from poise to frenzy, with soaring hedging costs and options measures reflecting the market’s anxiety.
On Friday, the 1-month dollar-rupee non-deliverable forwards surged to their highest level in a month, highlighting worries about rupee depreciation among offshore market participants.
The Nifty 50, India’s main equity index, dropped more than 1% during the day, while government bonds saw no movement following a decline in early trading. [.BO] [IN/]
The RBI’s “heavy intervention” prevented the rupee from suffering more losses, according to a trader at a major international bank.
The dealer went on to say that a speculative build-up against the currency would have been avoided had there been no central bank assistance.
The dollar index fell 0.2% to 100.3 during the day, while other Asian currencies were largely worse.
