The Reserve Bank of India has likely been "opportunistically" absorbing dollar inflows over the past few sessions, probably to replenish the forex reserves expended on supporting the rupee over the past few months, four traders said on Wednesday.
The rupee, supported by these inflows and the dollar's decline, climbed past 86.50 to a one-month high on Wednesday. It has gained just over 1% this month, after having slid 2% over January and February as the greenback rallied.
The Indian currency would likely have appreciated further if not for the RBI's dollar purchases, as evidenced by state-run banks bidding for dollars in recent sessions, the traders said.
Inflows related to inter-company borrowings and repatriation of corporate profits are usual in March, the last month of the financial year.
The central bank has been "opportunistically absorbing these flows" without having a specific level in mind, a senior trader at a bank said.
"They have a large gap to fill given how much (forex) reserves have been spent" to support the rupee as it plumbed lifetime lows frequently in the past two months, the trader added.
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