The Indian central bank's aggressive foreign exchange market intervention on Wednesday has sparked a positive shift in sentiment on the rupee in the options market, with a key volatility skew turning the most in favour of the currency in over a decade.

The rupee had its best day in four months on Wednesday due to the RBI’s intervention, and extended gains on Thursday, rising more than 1% from a near-record low the previous day.

MARKET REACTION

The 1-month 25-delta risk-reversal for the dollar-rupee pair, a gauge of near-term options market sentiment, has slipped to -0.8, the lowest in data going back to late 2012.

This signals that the market has flipped in favour of rupee strength as traders are more willing to pay for bets on the rupee rising than for protection against it falling.

See Full Page