The rupee has held up better than most EM currencies this month and the recent drop in FX reserves strongly indicates that this is in part because the RBI has once again ramped up its FX interventions. RBI Governor Shaktikanta Das has made clear that the central bank “will not allow a runaway kind of depreciation of the rupee at a rapid pace” and indeed, it still has lots of ammunition to continue intervening if the rupee comes under further pressure. After all, FX reserves remain plentiful at almost US$600bn (around ten months of import cover). This underpins our view that the rupee will continue to hold up well relative to other EM currencies, even as high commodity prices cause the current account deficit to widen.
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