Rupee ends at 5-week low due to dollar buying by PSBs

Ends at Rs 62.40 compared with previous close of Rs 61.63 per dollar

The rupee ended weak on Wednesday, at a five-week low, due to dollar buying by state-run banks, coupled with weak sentiment in the equity market.

It ended at 62.40 to a dollar, compared with Tuesday’s 61.63. It had opened at 61.98 and during intra-day trade, touched a low of 62.41 and a high of 61.83. On October 1, it had closed at 62.47 a dollar.

“The rupee weakened due to buying by state-run banks to meet the demand of corporates. There was also dollar buying by foreign banks, probably for arbitrage purposes. Weak sentiments in the equity market added to the weakness,” said Sandeep Gonsalves, forex consultant and dealer, Mecklai & Mecklai.

Since the start of this financial year, the rupee has weakened by almost 15 per cent. However, the Street believes this is temporary and the worst is over.

“Some of the oil marketing companies (OMCs) might have been asked to cover part of their maturing swap liabilities or fresh dollar demand from the market,” said Partha Bhattacharya, deputy chief executive, Mecklai Financial. The Reserve Bank of India had opened this forex swap window on August 28 for the three public sector OMCs. On that day, the rupee had touched an all-time low of 68.85 a dollar during intra-day trade.

In a conference call for researchers and analysts last month, RBI Governor Raghuram Rajan said, “We are watching the exchange rate market. When we feel fully confident that the market is working normally, then we will bring back the oil demand into that market but  any flows we should direct into the market rather than away from the market into our corpus.” 

On Tuesday, Bank of America Merrill Lynch said in a note to clients that RBI should start winding down its special forex swap window for OMCs because market expectations on the rupee have improved and the fall in the country's import cover needs to be stopped. "We believe the time is right for RBI to start tapering its swaps with oil companies, as the markets are already pricing these in," said the note.