India deploys reserves to bolster rupee

RBI chief may spend up to $20b in 2016 to anchor currency around 65 per dollar

Indian central bank Governor Raghuram Rajan oversaw the biggest jump in currency reserves among major developing nations and he’s not afraid to use them to help the rupee.

In a sign of intervention, the holdings fell $2.8 billion (Dh10.28 billion) in the two weeks ended January 8 to $326.4 billion. Rajan may spend up to $20 billion in 2016 to anchor the rupee around 65 per dollar, according to Bank of America Merrill Lynch estimates. A survey of strategists by Bloomberg sees the currency holding steady this quarter, while options signal just a 36 per cent chance it will breach the record low of 68.845 per dollar by March 31.

“We continue to expect the Reserve Bank of India to intervene to protect the rupee in case of an emergingmarket sell-off,” said Indranil Sen Gupta, a Mumbai-based economist at Bank of America banks. The stockpile climbed 11 per cent last year, the most in the Bric group of the four largest emerging markets that also includes Brazil, Russia and China. The two-week decline is the steepest for such a period since September 2015, central bank data compiled by Bloomberg show.

Rupee-denominated sovereign debt returned 8.1 per cent last year and 16.5 per cent in 2014, the best performance among major Asian markets for both the periods, Bloomberg Indexes show, as sliding Brent crude prices helped slow inflation and improve public finances for India, a net oil importer.

The rupee will end this quarter at 67 per dollar, according to the median estimate in a Bloomberg survey. That will be 0.9 per cent stronger than the 67.5750 level it traded at in Mumbai yesterday. The currency weakened 4.7 per cent in 2015, capping a fifth straight year of declines.

The central bank said ahead of last month’s US interestrate increase that it will step into in the exchange-traded derivatives market “if required,” widening the instruments it uses for intervention.