Indian rupee
India's central bank can call in its dollar reserves to fight off any further weakness in the rupee. Image Credit: Pixabay

Mumbai: India’s central bank kept amassing dollars all through 2019, ending the year with Asia’s biggest jump in foreign exchange reserves. That may come in handy now.

Authorities may deploy some of the stockpile to steady the rupee, which has tumbled more than 2 per cent over the past week as more locals are diagnosed with the coronavirus. The currency is the worst performer in Asia this month after having escaped relatively unscathed in February when most regional peers were hit by the contagion.

“The RBI has big firepower at its disposal in the form of FX reserves and can easily arrest the rupee’s losses,” said Sajal Gupta, head of foreign exchange at Edelweiss Securities Ltd. in Mumbai. “What we are seeing is a panic rupee reaction.”

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Massive pile

India’s foreign exchange reserves rose by $64 billion in 2019 and the central bank added another $18 billion in 2020, taking holdings to a record $476 billion as of February 21. The rupee ended Wednesday 0.1 per cent stronger.

Citibank on Wednesday said the rupee appeared to have over-reacted to confirmation of the new virus cases and it recommends buying bullish rupee exposure via options.