Rupee not seen weakening much despite Fed taper

Currency ends at 62.12/$ on RBI backing after hitting intra-day low of 62.48

Despite the US Federal Reserve’s decision to begin tapering its bond-buying programme, the rupee is not expected to weaken to the levels seen earlier this year.

The Reserve Bank of India (RBI) helped the rupee recover during the day. The currency ended stable on Thursday, compared to the previous close. It had weakened at the start of trading hours, after the Fed said it would reduce its monthly purchase of assets by $10 billion, to $75 billion in January.

The rupee ended at 62.12 to a dollar, compared with Wednesday’s close of 62.11. It had opened at 62.26 and during intra-day trade, touched a low of 62.48. But RBI intervention through state-run banks resulted in a high of 62.07 during intra-day trade.

“The rupee weakened towards 62.48 in the spot market, on the back of broad-based weakness among Asian and emerging market currencies against the dollar (due to the) US Fed’s decision. However, an improved current account outlook and active intervention from the central bank means it might not weaken the way it did in the summer. We expect a range of 61-64 to play out over the medium term, with markets within a 61.7/63.3 range for most of that time,” said Anindya Banerjee, currency analyst, Kotak Securities.

Earlier this year, the rupee had weakened to an all-time low of 68.85 a dollar, due to concerns on tapering and heavy dollar demand from importers. However, after new RBI Governor Raghuram Rajan announced a host of measures, the market is better prepared to face tapering.

“We are far better prepared, compared to May 22 when the first talk of tapering happened and the violent reaction we saw subsequently. We have seen $34 billion coming through. We have seen RBI taking steps like the way they managed the dollar demand from oil marketing companies. All these have helped the market. The vulnerability has definitely come down. But, having said that, growth is still weak, corporate and banking balance sheets are stretched. There are still elections coming through. Due to these factors, we aren't out of the woods as yet,” said G Ananth Narayan, regional co-head (global markets and wholesale banking), South Asia, Standard Chartered Bank.He expects the rupee to broadly remain in the 61.5-63.5 range from the middle to the end of January.