The rupee appreciated on Friday for the second day in a row, with help from exporters as they took advantage of low levels and aggressive intervention by the Reserve Bank of India (RBI). Lack of participation from oil marketing companies and recovery in the euro also helped the rupee gain against the dollar.
On Friday, it recovered most of the week’s losses and closed at 55.38 per dollar. This is 28p or 1.5 per cent up against the previous close. The currency had lost 1.7 per cent against the dollar over the week. Yesterday, it had hit an all-time intra-day low of 56.40.
Dealers said central bank intervention was seen near on Friday’s low of 56.09 in early trade. RBI also intervened in the forwards segment to offset the impact on rupee liquidity.
However, foreign fund outflows of about Rs 623 crore from Indian equity markets capped the currency’s gains. The euro recovered to 1.2572 (to the dollar) from 1.2532, ahead of the long weekend in the US. Also, the dollar index fell to 82.09 from 82.35 levels, helping the rupee find temporary relief.
|OUTLOOK FOR END 2012
Rs /$ estimates
|Source: Economist and treasury executives
A day after its central board meeting at Mussoorie, RBI Governor D Subbarao on Friday met Prime Minister Manmohan Singh to discuss macroeconomic and monetary conditions. Economists expect the Indian currency to remain weak, though it may recover modestly by the end of 2012 (see table). “With limited room for improvement in domestic macro fundamentals in the near term, any pullback in the rupee-dollar is likely to be largely dependent on the policy initiatives or an improvement in global risk appetite,” said Rahul Bajoria and Siddhartha Sanyal, economists at Barclays.
The market expects measures such as a separate dollar window for oil marketing companies and issuance of bonds to attract investment from non-resident Indians (NRIs). Apart from intervening in the foreign exchange market, RBI has taken several measures to stem further depreciation of the currency — raising the interest rate ceiling for NRI bank deposit accounts, curbing speculation from forwards and the futures segment, and asking exporters to covert half their dollar funds from exchange earners foreign currency accounts into rupees.
The central bank, which does not target a particular exchange rate, has sold a little over $20 billion since September 2011 in the spot market to curb volatility in the rupee.
“Management of the exchange rate and capital account liberalisation may not suffice in imparting stability to the exchange rate if a trade gap is allowed to persist,” Motilal Oswal Financial Services said in a report.