Chinese Yuan a key focus for RBI’s currency intervention

The central bank’s intervention policy is likely to be guided more by the yuan movement rather than the US dollar alone. The central bank is said to have informally aimed a benchmark level of 11.50 for CNYINR, said people familiar with the matter.

“Any drop from this would trigger intervention in the local market,” one of the persons cited above told ET.

RBI did not comment on the matter.

The central bank has reached out to currency dealers raising alerts over the yuan. Some market participants have also been enquired about their option trades linked to the yuan, market sources said.

“Yuan movement is at the centre stage for the regulator, which is taking currency trade information bit by bit,” said one of the persons cited above.

The whole objective is to maintain export competitiveness at a time when India is pursuing ‘Atmanirbhar’ with global investors shifting to China plus one strategy.

Among Asian peers the Chinese yuan, Singaporean dollar and Indian rupee are billed as three relative stable currencies for international investors. Post the pandemic, many global manufacturers are seeking other manufacturing destination besides China.

The CNYINR pair is at 11.65 versus 11.76 a month ago. It last slipped below 11.50 on September 29 this year to 11.46 losing value against the local unit.

On the same day, the one-month implied rupee volatility shot up seven basis points to 4.80 percent. The gauge was at 4.64 percent Wednesday.

The rupee was little at 74.40 a dollar Wednesday.

“The yuan INR pair has become an important determinant in the currency market locally in view of the export competitiveness between India and China,” said Manish Wadhawan, founder and managing partner at Serinity Macro Partners, a Mumbai-based advisory firm dealing with institutional investors.

“With the commerce minister aiming to increase the share of exports, the comparative INR assumes significance vis-a-vis yuan,” he said.

Last month, commerce and industry minister Piyush Goel urged exporters to aim for $450-500 billion of outbound shipments during the next fiscal year. Exporters have already touched $197 billion during the April-September period this fiscal.

Exports are on the right track to achieve this year’s target of $400 billion, the minister said.

The rupee is the second-best performing currency in Asia after the Philippine peso in the past one month, gaining 0.68 percent against the dollar, Bloomberg data showed. During the same period, Chinese renminbi lost a tad, 0.04 percent, ranking fifth among Asian peers.

“As exports become a priority for the nation, an excessive appreciation of INR vs yuan can add to pressure on competitiveness of exports from India,” Wadhawan said.

Given the trends in foreign trade, foreign direct investment and foreign portfolio investor

expects the rupee-dollar would trade at between Rs 74-74.5 on an average for the rest of the year with fluctuations on either end of 50 paise i.e. Rs 73.5 to 75. This means, currency swings are unlikely to cool off.