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Rupee's Record Low: System Glitch Triggers Dollar Surge

In a surprising turn of events, the Indian rupee experienced an unprecedented downturn, closing at an all-time low of 83.34 against the US dollar. This decline was exacerbated by a record intra-day low of 83.48, attributed to a system glitch that impacted an electronic trading platform, leading to a temporary halt in trading volumes. The Reserve Bank of India (RBI) has initiated an inquiry into the incident, seeking clarification from Refinitiv, a key player in the financial markets data and infrastructure.

Market Dynamics and RBI Strategy:
During this turmoil, the RBI opted to stay on the sidelines, deviating from its usual strategy of maintaining rupee stability through dollar sales. The situation unfolded as the US dollar strengthened globally, fueled by hawkish comments from Federal Reserve Chair Jerome Powell. Powell’s remarks, indicating uncertainty about whether interest rates were sufficiently high to combat inflation, contributed to a flat opening for the rupee at 83.28 levels.

Global Factors Influencing the Rupee:
The US Dollar Index (DXY), measuring the greenback’s strength against six major currencies, was trading higher at 105.89. Powell’s comments were perceived as hawkish by market participants, fostering gains in the dollar. The DXY reached an intra-day high of 105.99, further influencing the rupee’s downward trajectory.

Additionally, softer crude oil prices failed to provide support to the Indian currency, with Brent crude hovering around $81 per barrel. The combination of these global factors created a challenging environment for the rupee.

System Glitch and Trading Outage:
The critical moment of the day occurred when an electronic trading platform, operated by Refinitiv, experienced a system glitch, disrupting trading activities around midday. Traders were unable to log in, resulting in a depletion of orders and increased volatility. This led to a rapid surge in the value of the dollar, causing the rupee to lose ground and plummet to 83.48 levels before eventually recovering to close at 83.34.

RBI’s Inquiry and Refinitiv’s Role:
In response to this unexpected turn of events, the RBI has sought an explanation from Refinitiv, directing the financial giant to conduct a “root cause analysis.” The central bank aims to determine whether the disruption stemmed from a system failure or human error. Moreover, the RBI is keen on understanding the circumstances surrounding the disruption and whether standard operating procedures for business continuity were promptly activated.

Refinitiv, a prominent member of the London Stock Exchange Group, is a major contributor to financial markets data and infrastructure. The platform, along with four other entities, including banks, was granted permission by the RBI to operate an electronic trading platform (ETP) for forex transactions.

Impact on Forex Transactions and RBI’s Intervention:
A representative from a forex firm claimed that traders were unable to log in during the outage, affecting the RBI’s intervention in the inter-bank market through state-run banks. However, this assertion remains unverified. The RBI’s investigation aims to shed light on the extent of the disruption’s impact on market participants and the effectiveness of contingency measures.

As the RBI delves into the intricacies of the system glitch that triggered the rupee’s sharp decline, the incident raises questions about the resilience of electronic trading platforms and the need for robust business continuity measures. The aftermath of this episode emphasizes the importance of maintaining the integrity and stability of financial markets, not only for domestic participants but also in the context of global interconnectedness. Observers cautiously speculate on the likelihood of the rupee retesting the recorded lows, contingent upon the resolution of the identified issues and the implementation of preventive measures.

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