Mumbai, Dec 22 A likely Reserve Bank of India's intervention via a recent US dollar sale worth around $4 to $5 billion has arrested the sharp slide in rupee value, cited analysts.
The RBI is known to enter the markets via intermediaries to either sell or buy US dollars to keep the rupee in a stable orbit.
However, the decline might trigger again on the back of continuous selling by FIIs in the secondary market.
Lately, growing cautiousness over a US Fed's tapering measures as well as scare around the Omicron variant of the Covid-19 impacted investors sentiments.
Notably, tighter liquidity controls in the US tempts global investors to pull-out money from the emerging markets such as India.
The rupee on Wednesday closed at 75.55 to a greenback.
Last week, the rupee closed at 76.09 to a USD weakening significantly on a weekly basis.
The Indian rupee has stabilised this week after hitting its lowest level of 20 months.
"Recent correction in rupee seems to have been triggered as an overreaction to the Omicron variant," said Sajal Gupta, head of forex and rates at Edelweiss Securities.
"The RBI did intervene in the market when the rupee hit a year-to-date low of 76.31 last week. However, RBI is not expected to take further action as the flow picture seems quite favourable in the medium term."
Recently, the rupee has been under pressure after the RBI refrained from raising reverse repo rate and also as the Federal Reserve decided to increase its pace of tapering.
On the domestic front, FIIs have been net sellers in the recent past and restricted weakness for the currency suggests that RBI has actively intervened to curb the volatility.
"The suspected RBI intervention could be to the tune of $4-5 billion and market participants expect that the current market swings could still continue until the fear of the omicron variant does not dim," said Gaurang Somaiya, Forex & Bullion Analyst, Motilal Oswal Financial Services.
"Latest data released by the RBI showed reserves currently stand over $635 billion suggesting that the central bank has enough cushion to deal with short term volatility."
According to Dilip Parmar, Research Analyst, HDFC Securities: "Along with growth, the RBI started looking on liquidity and inflation aspect after FOMC meeting and from start of the week, they might have heavily intervene by selling dollar to curb the imported inflation and introducing 'VRRR' facility to remove extra the liquidity from the system."
"In the next couple of days, we could see the rupee oscillating in the range 75.10 to 75.70 in the absence of fresh global cues and selling of foreign institutions could be lower ahead of the Christmas holiday."
Disclaimer: This post has been auto-published from an agency feed without any modifications to the text and has not been reviewed by an editor