The Reserve Bank of India intervened Monday to keep the rupee from going below its all-time low, with state-run banks witnessed selling dollars on the central bank's behalf as the currency hovered perilously near to its record low level.

The rupee closed at 88.76 per US dollar, essentially unchanged from the previous session and within touching distance of its all-time low of 88.80 set in late September. Four dealers confirmed to Reuters that the central bank interfered during the trading day by giving dollars via state-run banks.

The intervention occurred as the currency faced renewed pressure from a broadly higher dollar and importers' continued hedging. The dollar index reached 99.76, nearing its best level in three months, while Asian currencies were flat to slightly weaker on the day.

Key Highlights

• RBI intervenes in forex market to curb rupee depreciation and prevent a record low.
• Central bank’s action stabilizes currency amid global dollar strength and foreign capital outflows.

RBI's Defensive Strategy

The central bank's involvement demonstrates its commitment to preventing disruptive currency swings. Market participants pointed out that the RBI has been particularly active around the 88.80 level, viewing it as a critical line of defense.

"The RBI is actively protecting the same level, 88.75 (a dollar)," said a dealer from a private-sector bank. The central bank had earlier increased its assistance significantly in mid-October, resulting in the rupee's largest one-day advance in more than 16 weeks.

According to recent estimates, the RBI used large resources to support the rupee, selling between $3-5 billion in spot and non-deliverable future markets during a major intervention in October. The RBI's foreign reserves of about $700 billion offer ample ammo for such operations.

Broader Market Pressures

The rupee's decline is due to a number of factors, including the dollar's strength following hawkish Federal Reserve rhetoric and continuous importer hedging activities. Fed Chair Jerome Powell's recent cautious stance on future rate cuts has pushed the dollar index to nearly three-month highs.

Despite widespread global dollar weakness, the currency has fallen by more than 3.5% this year, dragged down by concerns about anticipated US tariffs and harsher immigration regulations. Exporters have been hesitant to sell their dollar earnings amid prospects of more devaluation, while importers have increased hedging, resulting in supply-demand mismatches.

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Market participants anticipate that the RBI will continue its intervention policy, with many identifying 89 per dollar as the next significant level to monitor if the current defense fails. The central bank's policy appears to be centered on maintaining stable market conditions rather than defending a fixed exchange rate level.