The Indian rupee witnessed an upward movement on February 24, opening 13 paise stronger at 86.58 against the US dollar. The currency started the trading session at 86.5800 per dollar and later reached 86.6400. In contrast, the rupee had closed at 86.7125 in the previous session. The dollar index, which measures the US dollar’s performance against a basket of six major global currencies, declined to 106.193 in early trade, compared to its previous close at 106.612.
Reasons Behind the Rupee’s Strength
Amit Pabari, Managing Director of CR Forex Advisors, highlighted that the sharp decline in the dollar index has provided significant support to the Indian rupee. The dollar index (DXY) dropped to around 106.60, primarily due to multiple factors, including US President Donald Trump’s flexibility on tariffs and a weaker-than-expected US services PMI. These developments have softened the dollar’s stance in the global market, benefiting emerging market currencies like the rupee.
RBI’s Liquidity Injection Through Forex Swaps
On February 21, the Reserve Bank of India (RBI) announced its plan to conduct long-term dollar/rupee buy/sell swaps to infuse stable liquidity into the banking system. The central bank is set to execute a three-year buy/sell swap worth $10 billion on February 28, with the first leg of settlement scheduled for March 4. This will be the second swap auction by the RBI within a month, following its injection of $5.1 billion through a six-month swap conducted on January 31.
Impact of RBI’s Move on the Market
Anil Kumar Bhansali, Treasury Head and Executive Director at Finrex Treasury Advisors LLP, mentioned that the RBI’s latest three-year swap auction is expected to ease liquidity constraints, potentially leading to a reduction in forward premiums. This move aligns with the central bank’s broader strategy to stabilize the currency market and ensure sufficient liquidity in the financial system.
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