Rupee Pares Loss From One-Month Low on Suspected Intervention

What's Next for the Reserve Bank of India?
  • RBI Governor Rajan to leave post when term ends in September
  • Indian stocks rise with rest of region as Brexit loses lustre

The rupee pared its decline as traders said state-run lenders sold dollars on behalf of the Reserve Bank of India after the local currency slid to a one-month low on the news Governor Raghuram Rajan will leave his post when his term expires in September.

The rupee ended 0.3 percent lower at 67.3125 versus the greenback in Mumbai, the only loser among 23 emerging-market currencies tracked by Bloomberg. Monday’s drop was its biggest in a week. The currency slipped as much as 0.9 percent earlier to 67.66, the weakest since May 24, and has slumped 1.7 percent this year in Asia’s worst performance. Stocks advanced with the rest of the region on Monday as polls showed the U.K. camp for leaving the European Union losing traction.

Dollar selling by state-run banks, possibly on behalf of the RBI, helped the rupee pare losses, said Rohan Lasrado, Mumbai-based head of foreign-exchange trading at RBL Bank Ltd. “The recovery in stocks and exporters’ presence also helped the rupee.”

Rajan announced on Saturday he’ll step down when his term ends Sept. 4 and go back to academia, in a letter written to Reserve Bank of India’s staff. That put to rest months of speculation surrounding his future after he was criticized by Subramanian Swamy, an outspoken lawmaker with a large Twitter following, who said Rajan was “mentally not fully Indian” and kept interest rates unnecessarily high. International investors including Western Asset Management Co. and Schroder Investment Management Ltd. have said his potential departure was a risk to the rupee.

“Given the uncertain global environment with the upcoming Brexit vote and a potential Fed rate hike, having someone like Rajan who has huge credibility stepping down at this time will not help confidence,” said Khoon Goh, a senior foreign-exchange strategist at Australia & New Zealand Banking Group Ltd. in Singapore. Markets are seeing “it as a disappointment.”

For more on some of the potential concerns for investors, click here.

One-month implied volatility in the rupee jumped 37 basis points to 7.05 percent. It rose last week by the most since August as prospects Britain would vote at this Thursday’s referendum to quit the EU roiled financial markets.

The S&P BSE Sensex Index of Indian shares climbed 0.9 percent, while the MSCI Emerging markets Index rallied 1.6 percent. The yield on India’s 10-year bonds fell one basis point to 7.49 percent.

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