INDIA RUPEE-Rupee leaps on RBI intervention; traders say recovery may not stick

By Jaspreet Kalra

MUMBAI, Mar 5 (Reuters) - The Indian rupee rallied sharply on Thursday, lifted by aggressive RBI action and a steadier global backdrop, while traders cautioned the rebound could fade as geopolitical tensions continue to cast a pall on risk assets.

The rupee INR=IN was at 91.62 per dollar, up 0.6% from its close on Wednesday, when the currency dropped to its all-time low of 92.3025.

Aggressive dollar sales from state-run banks, most likely on the RBI's behalf, shored up the rupee, traders said.

Global markets, too, caught their breath on Thursday, with Asian equities rallying after U.S. President Donald Trump pledged protection for shippers and a New York Times report said Iranian intelligence had contacted the CIA early in the war about a possible path to end it.

MSCI's gauge of Asian shares rose more than 2%, while India's stock benchmarks, the BSE Sensex .BSESN and Nifty 50 .NSEI, added about 0.3% each.

However, analysts warned that the outlook remains tentative, as any geopolitical flare-ups could put pressure back on risk assets.

"In addition to wider risk-off sentiment, concerns over rising inflation and a widening trade deficit, we believe the rupee's slide has been exacerbated by increased speculative positioning on the limits of the RBI's ability to defend the currency," economists at Oxford Economics said in a note.

Speculative pressure is visible in rising near-tenor NDF points and a turn in the dollar-rupee volatility skew, which is signalling growing appetite for short-rupee bets.

The rupee has declined about 2% year-to-date, and is among Asia's worst performing currencies this year.

It's unlikely that the currency's rebound will persist unless oil prices retreat, a trader at a private bank said. Brent crude oil prices LCOc1 were last at $84 per barrel, up nearly 40% year-to-date and near its 19-month high of $85.12 hit on March 3.