Dollar sale by RBI couldn't stop rupee from falling further

Despite central bank's sale of over $2 billion, rupee weakened by 5% in June

Despite the Reserve Bank of India's (RBI) dollar sale to the extent of $ 2.25 billion in June, the rupee weakened by almost five per cent during the month. The sale made by RBI in June is the highest in almost one-and-a-half years.

The RBI had sold $ 7,303 million in January 2012. RBI data shows that since September 2011, they have been intervening in the forex market almost every month.

RBI data showed that for the week ending June 28, RBI's total forex reserves stood at $ 285 million and during the week, it fell by $ three billion.

RBI has been intervening in the market even in recent times. But despite that, the rupee has been weakening and it might weaken even further from current levels.

The rupee breached the 61 per dollar mark to close at 61.28 on Monday, compared with the previous close of 60.86. The rupee had opened at 60.51 and during intra-day trades, touched a low of 61.30 and a low of 60.49.

"The street was expecting the finance minister to unveil concrete steps. There is demand from oil importers and that is affecting the rupee," said a currency dealer with a private sector bank.

According to currency dealers, state-run banks acting on behalf of the RB) were absent on Monday due to which, the currency kept weakening.

Government bond yields rose, tracking the fall in the rupee against the dollar. The yield on the 10-year benchmark government bond 7.16 per cent 2023 ended at 8.30 per cent compared with the previous close of 8.13 per cent.

Due to auction of cash management bills for Rs 11,000 crore by RBI on Monday, liquidity tightened further. In the inter-bank money market, call money rates and rates of Collateralised Borrowing and Lending Obligation (CBLO) touched double digits. The weighted average call rate was at 10.3 per cent on Monday, compared with Saturday's 7.8 per cent. While weighted average CBLO rate was at 10.2 per cent on Monday, compared with Saturday's 7.4 per cent.



Last month, RBI announced liquidity tightening measures to arrest the volatile rupee. However, despite that, the rupee touched a fresh all-time low of 61.81 earlier this month.

 

The Index of Industrial Production (IIP) for the month of June contracted at -2.2 per cent compared with -1.6 per cent in May. "As IIP contracts further, it would result in more pullout by foreign institutional investors from domestic markets on Tuesday," said a currency dealer with a public sector bank. Though Consumer Price Index inflation slowed down to 9.64 per cent in July from 9.87 per cent in June, the expectations of a further rate cut has waned due to the volatile rupee.

According to the currency dealer, the rupee is expected to trade in the range of 61.50-61.50 on Tuesday and the bias is more towards weakening.