Re seen ranged on rising inflation, RBI intervention
OUTLOOK/ Currency
| However, foreign exchange dealers feel that, with intervention of the Reserve Bank of India (RBI), there will be enough support for the rupee at 46.50. |
| Moreover, the dollar, which has been strengthening against its global peers after the recent US jobs data, has started falling after Alan Greenspan, the Federal Reserve chief, said in the last FOMC meeting that the pace of US economic recovery was losing steam. |
| Dealers said Greenspan's statements imply that the economic recovery in the US has yet to pick up in a full swing and hence another round of funds rate hike will be detrimental for the rebound. |
| Meanwhile, even as the global crude oil prices reached an all-time high of $47.20 per barrel and there has been a growing demand from oil companies for foreign exchange, change of import payment strategy by the oil firms and timely intervention by the RBI has been able to hold the rupee in the range of 46.27-50 during the few weeks. |
| Dealers said the oil firms importing crude are spreading out their import payments on a daily basis by preferring to pay daily for their imports to avoid the exchange rate risk. |
| This strategy pays off well at a time when the oil price itself is so volatile, said the dealer. Earlier, the oil firms used to wait for the month end to make the payments and the forex market used to witness huge demand for foreign exchange towards the end of the month. |
| According to a forex dealer, an informal estimate of RBI puts an incremental outflow to the tune of $ 675 million with per dollar increase in the price of crude. |
| While oil firms have been prudent in the changing the payment tactics at the right time, the RBI has also started intervening heavily in the foreign exchange market. |
| The state run banks, on behalf of RBI have been selling dollars into the market to support the spot rupee exchange rate at a time foreign exchange inflows from other sources have virtually dried down. In the process, the forex reserves have fallen by almost $2.5 billion in the past few weeks. |
| Upward pressure on forward premiums |
| The strategy of RBI to sell dollars and support rupee and in the process suck out the rupee liquidity has paid off in two ways, says a dealer. |
| It has been able the curtail the impact of excess liquidity in the financial system on the rising inflation rate which again is due to the oil prices to a large extent. |