RBI intervenes to stem rupee weakness

Economic affairs secretary Arvind Mayaram said that 30-40% of state-run oil companies' dollar demand has returned to markets

The rupee ended almost flat on Thursday as the Reserve Bank of India (RBI) intervened in the foreign exchange market by selling dollars through state-run banks. The rupee weakened and breached the Rs 62.50 dollar mark due to dollar demand by corporates which mainly include state-run Oil Marketing Companies (OMCs).

Economic affairs secretary Arvind Mayaram said today in news channels that 30-40% of the state-run oil companies' dollar demand has returned to markets. RBI had opened the forex swap window on August 28 for three public sector OMCs namely IOC, HPCL and BPCL as on that day the rupee had touched an all-time low of Rs 68.85 per dollar during intra-day trades.

The rupee ended at Rs 62.42 compared with previous close of Rs 62.40 per dollar. During intra-day trades the rupee had weakened to Rs 62.73 per dollar. The rupee had opened at Rs 62.40, unchanged from Wednesday's close.

“State-run banks were selling dollars on behalf of RBI due to which the rupee recovered. As Mayaram has assured in news channels that the rupee will stabilise in 1-2 days because state-run OMC demand for dollars will get absorbed in the market, the rupee may trade range-bound,” said Sandeep Gonsalves, forex consultant and dealer, Mecklai & Mecklai.

Since the start of this fiscal the rupee has weakened by 15%. However, the volatility in the rupee has come down sharply as RBI had taken a host of steps.

“If the demand of state-run OMCs are brought into the market in a calibrated manner, then it will not have much impact on the rupee. Trade deficit is coming down and that is surely positive for the rupee,” said Ashutosh Khajuria, president (treasury), Federal Bank.

Meanwhile, today Standard & Poor's Ratings Services affirmed the 'BBB-' long-term and 'A-3' short-term unsolicited sovereign credit ratings on India. However, they warned that the outlook on the long-term rating remains negative.

The street believes that RBI will not allow the rupee to weaken significantly. By end-March sees the rupee settling somewhere between Rs 60-62 per dollar.