The rupee’s slide to a 15-month low after Prime Minister Modi’s Bharatiya Janata Party failed to gain a majority in a key state election prompted the authorities to step in and support the currency.
The rupee’s slide to a 15-month low after Prime Minister Modi’s Bharatiya Janata Party failed to gain a majority in a key state election prompted the authorities to step in and support the currency, traders said.
State-run banks sold dollars on Wednesday, probably on behalf of the central bank, according to two Mumbai-based traders who asked not to be identified as they are not authorized to speak publicly. The rupee strengthened as much as 0.5 percent to 67.7563 per dollar after tumbling to 68.1425 on Tuesday, the weakest since January 2017.
Asian currencies have been under pressure since April as the U.S. dollar has surged, pushed up by rising Treasury yields. Bank Indonesia said last month it made a “sizable” intervention to stabilize the rupiah and pledged to take more action if necessary.
Modi’s BJP won the most seats in the Karnataka election but fell eight short of gaining a majority in the 224-member assembly, allowing rivals Congress party and Janata Dal (Secular) to stake a claim to form a coalition government. The result is seen heightening political uncertainty before a national election next year, and triggering a possible increase in populist measures that would weigh on India’s worsening finances.
India’s 10-year bond yield fell two basis points to 7.89 percent after earlier climbing to 7.92 percent, the highest since June 2015. Yields have increased in eight of the past nine months as rising oil prices have boosted inflation.
As the rupee has weakened, overseas investors are cutting holdings of local government and corporate bonds for a fourth straight month. Net sales have swelled to 149 billion rupees ($2.2 billion) this year.
India’s foreign-exchange reserves have fallen by more than $7 billion in the past three weeks, a sign the RBI may have intervened to support the rupee. The currency has declined 4 percent this quarter, Asia’s worst performer.