INR: RBI intervention provides just temporary relief – Societe Generale

INR Sees Brief Recovery After RBI Measures

According to Societe Generale analysts, the Indian rupee gained over 1% following intervention by the Reserve Bank of India and the introduction of new restrictions on banks’ net open foreign exchange positions. Despite this rebound, the rupee has still fallen by 4% this month, largely due to significant foreign portfolio investor (FPI) outflows.

Temporary Gains Amid Ongoing Economic Challenges

The RBI’s recent actions included instructing commercial banks to cap their net open rupee positions in the FX market at $100 million by the close of each business day, a change from the previous limit of 25% of a bank’s total capital. This policy took effect on April 10.

So far in the month, the rupee’s decline has been driven by unprecedented FPI withdrawals, with $12.1 billion leaving equities and $1.6 billion exiting bonds.

Analysts caution that the recent relief for the rupee may be fleeting, as persistent challenges related to trade deficits, fiscal pressures, and ongoing negative portfolio flows continue to weigh on the currency.

Additionally, the yield on 10-year Indian government bonds is approaching the 7.0% mark, a level not seen since July 2024, signaling further market concerns.