The rupee traded at 93.92 to the dollar on 6 November, 1.1% stronger in a week and 2.9% stronger in a month1. The Times of India put it at 93.90 in afternoon trade, the highest since 22 April5.
Reserve data published the same day pointed the other way. The RBI's weekly statistical supplement put reserves at $717.06 billion in the week to 30 October. That is $2.69 billion less than the week before, and $68.65 billion below the record $785.71 billion of the week to 4 September2.
Why reserves fell
Mint attributed part of the weekly fall to RBI dollar sales to support the rupee and to the deployment of FCNR(B) swap funds2. Reported reserves also move with the dollar value of euro, pound and yen holdings, so a fall is not the same as dollar selling of that size2.
The FCNR(B) scheme explains the scale. The RBI ran a dollar-rupee swap window for foreign currency deposits from 8 June to 31 August4. Banks raised $132.98 billion of deposits under it, and inflows under the wider scheme reached $143.6 billion by 18 September4. Those dollars must be bought back later. Uday Kotak, founder of Kotak Mahindra Bank, put the repayment, including interest, at $160 billion to $170 billion over three to five years4.
What pushed the rupee up
Foreign investors bought nearly $3 billion of Indian equities in the week, including $1.6 billion on Thursday, the biggest single-day purchase in nearly six years5. Brent crude fell nearly 20%, its steepest weekly decline since April 20205.
Dilip Parmar, a currency research analyst at HDFC Securities, said softer crude, easing yields and renewed foreign inflows after the US midterm results all supported the rupee. The Times of India carried his comments and credited Reuters5.
The rupee is still weaker than at the start of the year. The dollar buys 4.5% more rupees than on 31 December1. The currency hit a record low of 96.96 in May5.
Earlier in the period the RBI was selling dollars to slow the fall. The IMF said reports put that intervention at about $90 billion since June3.
What the swing does to bills
For an importer paying in dollars, a dollar of invoice value converts into 2.9% fewer rupees than on 7 October1. Charges quoted in dollars, freight included, convert at the same lower rate.
Hedging cuts the other way. The one-year forward premium stood above 4.5% in late October, when US Treasury bill yields were around 4.4%6. A forward premium is the amount by which the forward rate exceeds spot, so a buyer who books dollars a year ahead pays more than the spot price6. Kotak put the annual cost of hedging dollar holdings at about 3.5%4.
Exporters see the mirror image, and they are already squeezed. Freight increases and a container shortage have eroded margins, even as goods exports rose 23% in September to $44.40 billion7.
Raghuram Rajan, a former RBI governor, told the Reuters Global Markets Forum that "Some currency depreciation is not necessarily a bad thing in this kind of environment"8.
What to watch
Mint's watch list is the pace of reserve depletion, the rupee, foreign portfolio flows and RBI intervention2. On 5 November it reported importer dollar demand around 94.50 and likely RBI intervention near 94.359.
Ritesh Bhansali of Mecklai Financial Services said the currency could test 93.80 to 94.00 per dollar in the near term9.
Forecasts split. Deutsche Bank expects the rupee to weaken beyond 97 per dollar in 2027 if global conditions do not improve10. SBI's economic research department said on 1 November the rupee had an appreciating bias as the dollar index weakens after the midterms11. The RBI website showed the FBIL reference rate at 94.1402 as at 1.00pm on 6 November, before the afternoon move12.
All figures are as of 6 November, the last trading day. Markets were closed over the weekend.