Dollar demand, capital outflows pull rupee down

The rupee's decline is despite the RBI's liquidity-tightening steps announced last week

The rupee fell by 37 paise on Monday to end at 59.72 against the dollar, compared to the previous close of 59.35, due to month-end demand for the greenback by importers and capital outflows.

On Monday, the rupee opened at 59.31 against the dollar. During intra-day trades, it touched a high of 59.31 and a low of 59.73. In absolute terms, Monday’s fall is the biggest drop since the rupee’s 39 paise depreciation on July 8, when it plunged to a record low of 61.22 a dollar.

Currency dealers attributed the Indian currency’s fall to heavy dollar demand from importers, mainly oil refiners, to meet month-end requirements and some banks on behalf of their clients. The rupee’s decline is despite the Reserve Bank of India’s (RBI) liquidity-tightening steps announced last week. The Street fears RBI might announce more liquidity tightening steps and may even resort to a rate hike in the first-quarter review of the monetary policy on July 30.

Some experts are of the view that RBI should instead resort to sharp rate cuts. “RBI should cut interest rates as this will bring in FII (foreign institutional investor) flows in equities,” said Pradip P Shah, chairman, IndAsia Fund Advisors, in a panel discussion on the rupee held in Mumbai.

Call rates end higher
Call rates finished higher at the overnight market due to good demand from borrowing banks. The rates finished higher at 7.10 per cent from previous closing level of six per cent.

It moved in a range of 7.40 per cent and 7.10 per cent.