The firepower of 476 billion dollars from India can stop the fall of the “panic” of the rupee
Authorities can deploy some of the stocks to stabilize the rupee, which has plummeted more than 2% over the past week as more locals are diagnosed with the coronavirus. The currency has the worst performance in Asia this month after having escaped relatively unscathed in February, when most regional peers were affected by contagion.
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“The RBI has great firepower at its disposal in the form of foreign exchange reserves and can easily stop the rupee’s losses,” said Sajal Gupta, head of foreign exchange at Edelweiss Securities Ltd in Mumbai. “What we are seeing is a reaction of rupees of panic.”
Indian currency reserves increased by $ 64 billion in 2019 and the central bank added another $ 18 billion in 2020, bringing holdings to a record $ 476 billion as of February 21, according to data compiled by Bloomberg. China added $ 35 billion last year, while reserves increased by $ 8.5 billion in Indonesia and $ 2.2 billion in Malaysia.
State lenders sold dollars on behalf of the central bank on Wednesday, according to two Mumbai-based merchants who did not want to be identified. The rupee ended the day 0.1% stronger.
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Citibank said Wednesday that the rupee seemed to have overreacted to the confirmation of new virus cases and recommended buying exposure to the bullish rupee through options. India’s link with the global supply chain is limited and the current account deficit can be reduced due to the impact of the virus on economic activity and lower commodity prices, strategist Gaurav Garg wrote in a note.