Rupee gains for second day

Rajan speak boosted sentiments; RBI intervention seen

The Reserve Bank of India (RBI) intervened on Thursday in the foreign exchange market, helping the rupee to rise for a consecutive session against the dollar. This was a day after RBI Governor Raghuram Rajan boosted the confidence of investors by assuring that the current account deficit (CAD) would be brought down substantially.

Till Wednesday, the rupee had lost a little over three per cent in the past five trading sessions, prompting the central bank to state there was no fundamental reason for volatility in its value.

The rupee closed at 63.12/$ on Thursday, compared to 63.32/$ on Wednesday.

The rupee gained strength since Wednesday, after the central bank said the CAD for this financial year would be brought down to $56 billion, below three per cent of gross domestic product (GDP). It reached a record high of 4.8 per cent of GDP in 2012-13. The central bank’s preference is for it not to exceed 2.5 per cent of GDP but it has been above this for three years. Rajan had said inflows worth $18 bn had come in so far via the twin swap facilities. Market participants initially had estimated $20 bn would come in and these are open till the end of this month.

The high CAD, coupled with fear of the US Federal Reserve starting to taper its asset purchase programme, had taken a toll on emerging market currencies. The rupee hit an all-time low of 68.85/$ on August 28. The central bank then unveiled measures to attract inflows, which have stabilised the currency since September.

Rajan’s comments also helped the equity markets, which snapped a week’s losing streak. The benchmark BSE Sensex ended one per cent higher on Thursday from the previous close. RBI had announced bond purchases worth Rs 8,000 crore next Monday via open market operations, to ease liquidity.

Meanwhile, yields on government bonds hardened across tenures after data showed Wholesale Price Index (WPI)-based inflation for October was higher than expected. The yield on the benchmark 10-year 7.16 per cent government bond closed at 9.02 per cent on Thursday, against 8.92 per cent on Wednesday.

The increase in yields also triggered concern that the RBI would further raise the policy rate at its mid-quarter policy review in December.

Meanwhile, bond auctions by RBI saw devolvement on primary dealers for one of four securities. The cut-off for 10-year government securities (8.12 per cent) was a yield of nine per cent. The amount devolved under this security was Rs 460.5 crore, RBI said. The other three securities were fully subscribed.