Reserve Bank of India sells $7B to support rupee in major intervention

The Reserve Bank of India just threw $7 billion at the foreign exchange market to keep the rupee from sliding further into the abyss. The intervention, which took place over July 24-25, represents one of the largest direct currency defenses the RBI has mounted in recent months. The rupee had been hovering around 97 against the US dollar, flirting with record lows that clearly made the central bank uncomfortable enough to open the war chest. For context, the currency had already weakened about 2% in July alone before the RBI decided enough was enough. What’s driving the rupee’s decline Three forces have been conspiring against India’s currency. Rising crude oil prices are the big one, since India imports the vast majority of its oil and pays for it in dollars. That creates constant selling pressure on the rupee. Then there’s foreign portfolio outflows. International investors have been pulling capital out of Indian markets, which means converting rupees back into dollars and euros on the way out the door. More selling pressure. And finally, the US dollar itself has been stubbornly strong, making life difficult for virtually every emerging market currency, not just the rupee. The cou...