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The Reserve Bank of India has sought an explanation from Refinitiv after a glitch on the electronic trading platform caused trading volumes in the foreign exchange market to dry up, causing volatility in the rupee, which marked new lows versus the US dollar on Friday.

Market sources told ET that the trading outage, which occurred around mid-day, resulted in orders drying up, exacerbating volatility in the rupee’s exchange rate amid a global selloff in stocks and bonds due to hawkish comments by the US Federal Reserve chairman.

The rupee closed at an all-time low of 83.34 per US dollar on Friday. Intraday, the rupee weakened to as much as 83.48/$1, also a fresh low. The domestic currency had closed at 83.29/$1 on Thursday.

“The RBI is said to have asked for an explanation from the ETP operator about the circumstances in which the trading issue occurred. There was avoidable and excessive volatility in the rupee’s exchange rate on Friday, largely caused by the trading glitch on the platform which houses a bulk of currency market trade,” a market source said on condition of anonymity.

“Essentially, the RBI is said to have sought an explanation on whether standard operating procedures on Business Continuity Planning were followed,” the source said, adding that the central bank wished to ascertain the root causes of the glitch and whether human error was involved.

“Due to a technical incident that impacted some of LSEG’s client authentication services, some customers experienced issues accessing FXT, impacting their ability to trade on FX Matching between 06:33 GMT and 07:03 GMT. The issue has been resolved and normal service restored. Root cause analysis is in progress,” an official of LSEG, Refinitiv’s parent, said to ET.

The rupee was under pressure versus the US dollar on Friday as comments by US Federal Reserve Chair Jerome Powell hinted at more rate hikes in the world’s largest economy. Powell said that it was not yet certain if the Fed’s policy was sufficiently restrictive to guide inflation back to its 2% target. Yield on the 5-year US Treasury note jumped past the 5% mark following the comments while stock markets fell.

“For rupee, at this particular point in time, the global fundamentals are playing an important role but of course we have also seen active (RBI) intervention which has been supporting the rupee. In terms of our forecast, we expect the rupee to be at 83.50/$1 by end of December,” said Anubhuti Sahay, Standard Chartered Bank’s head of South Asia Economic Research.

“To that extent this move is in line with what we have been expecting, which is that with a stronger dollar, currencies like the Indian rupee would see some weakness. Having said that, we do not expect very sharp depreciation because the RBI still has more than 10 months of import cover and oil prices as we speak have been well contained,” she said. Latest data showed that as on November 3, the RBI’s foreign exchange reserves had risen by $4.7 billion to $590.78 billion.

For the past couple of months, the rupee’s depreciation has been largely contained due to likely interventions by the Reserve Bank of India amidst sharp volatility in US bond yields and global strength in the dollar. The stability of the rupee has been a factor that has prompted overseas investors to increase their holdings of Indian government debt, traders said.

  • Published On Nov 11, 2023 at 07:44 AM IST

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