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It was an eventful Friday for the forex markets. Entirely out of the blue, the rupee broke the one-year-old support level of 83.30 and traded close to 83.40 for the better part of the day before strengthening to close at 83.34, a new all-time closing low. We will get to the mid-day drama of panic when the electronic trading system froze in a bit.

Market reporters struggled to find a reason for the rupee’s fall today because crude is a good 20% below its October highs and the dollar index is 2% off its October highs. Yet the Indian currency has remained in a tight range of 83.05 to 83.30 for almost 30 trading sessions from September 26 to November 9.

In these seven weeks, US yields have climbed from 4.3% to 5% on October 19 and back again to 4.6%. The dollar index swayed from 105.5 to 107 (on October 3) and back to 105.9 today. Brent crude went to a high of $97 per barrel on September 26 and tumbled to a low of 79.20 on November 9. All these are seminal to the dollar-rupee, and the currency should have bounced in an 8–10% range.

But no, the rupee remained in a tight 0.2% range of 83.05 to 83.29 thanks to heavy intervention by the RBI, mostly in the NDF (or non-deliverable forwards), which is an offshore market in countries like Hong Kong and Dubai where hedge funds punt on the currency.

The strong intervention by the RBI in these markets nullified any speculative attack on the rupee in late September when crude held around $95 per barrel for nearly a week. This intervention also nullified rupee shorts when US 10-year treasury yields surged to 5% in mid-October.

But the RBI’s intervention in the NDF markets only nullifies the speculators, a dealer at a large private bank explained. The inherent demand for dollars from FPIs pulling out their equity investments in India and from Indian oil companies remains.

Today, the RBI apparently chose to let go. It had to, at some point, end the bogey of protecting the 83.30 level, and it probably chose a day when crude and the dollar index were calm. So the fall today wasn’t swift or speculative, but backed by genuine buyers.

However, there were 13 long moments of madness around noon when the rupee, which was holding around 83.38/39, suddenly fell to 83.45. The reason was an outage on Refinitiv, the electronic FX trading platform. FX traders couldn’t log in, and a brief panic gripped the market. But by 12.15, calm was restored as the platform started working again.

But aside from the brief drama, today will be remembered by FX market watchers as the one when the RBI unloaded the yoke of 83.30. It’s unclear why RBI has chosen this level and stuck to it for so many turbulent weeks. For traders, it is the hereafter that matters more. Most see 83.50/$ as the next support for the rupee, while some think a decline towards 84 can’t be ruled out by the end of the fiscal year.

The RBI likes a gently depreciating rupee to adjust to the inflation differential, as dealers have explained in the past. Also, selling dollars closer to 84 can help the RBI post some profit and declare a handsome dividend to the government this year.

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