The Indian rupee has strengthened to 94.27 against the US dollar, supported by a major capital boost secured by the Reserve Bank of India (RBI), which raised more than $136 billion through its specialized programs. The substantial inflow gives the central bank significantly greater capacity to defend the currency in the foreign exchange market.

The rupee's improved position follows recent measures taken to bolster its value. Over the past month, the currency has become the second-best performing currency in Asia, a shift attributed to the RBI's actions and the accompanying capital inflows.

The $136 billion raised by the RBI comes through dedicated programs designed to attract foreign exchange into the banking system. Facilities of this kind, such as the RBI's foreign currency non-resident (bank) deposit relaxations and special swap windows for banks, work by encouraging banks and institutions to bring in dollar deposits and borrowings that add to the central bank's usable reserves. The inflow strengthens the reserves position, providing more ammunition to smooth volatility in the rupee and counter disorderly moves in the currency market. India's foreign exchange reserves, which include foreign currency assets, gold, special drawing rights, and India's reserve position with the International Monetary Fund, are published weekly by the RBI and serve as a key buffer against external shocks. For importers, oil marketing companies, and external borrowers, a stable reserve buffer matters because it reduces the risk of sharp rupee swings feeding into import costs and corporate hedging expenses.

Currency watchers in Asia typically track the rupee's performance against peers such as the Singapore dollar, Indonesian rupiah, Thai baht, South Korean won, and Malaysian ringgit. The rupee's rise to the second spot among Asian currencies over the last month marks a notable change in its relative standing.

The rupee had come under pressure in earlier trading, prompting the RBI to deploy measures aimed at shoring up the currency. The recent strengthening to 94.27 per dollar reflects the effect of those measures, which brought in large dollar inflows and enabled the central bank to intervene more robustly in support of the rupee. Market participants generally watch the RBI's weekly reserve data and forward premia levels as indicators of how much intervention capacity remains, and whether the special facilities are being drawn down over time.

The Reserve Bank of India, the country's central bank and monetary authority, regularly intervenes in the foreign exchange market to curb excessive volatility, consistent with its mandate. Its toolset includes spot market intervention, as well as special facilities designed to attract dollar deposits and borrowings from banks and financial institutions.

Source: Economic Times Markets