Rupee touches one-week high on Shome panel's GAAR proposal

But weak performance of domestic equity markets pulls the currency down

The rupee opened the week on a high note in reaction to the Parthasarathi Shome panel recommendation to postpone the general anti-avoidance rules (GAAR). However, lacklustre trade in domestic equity markets and thinner volumes in the foreign exchange market dragged the rupee down to close flat.

On Monday, the rupee closed at 55.53 a dollar, unchanged from its last week’s close. The domestic currency touched a one-week high of 55.41 against the dollar in early trade.

On Saturday, an expert panel suggested that GAAR could be put off for three years. “The announcement about the extension of GAAR by three more years from March 2013 is welcome news and the rupee can regain its strength, boosted by favourable investor sentiment,” said Param Sarma, director and CEO of NSP Treasury Risk Management Services. “The other reform measures are not forthcoming in the near term and any recovery in the rupee provides a good opportunity to hedge the near-term payables for the importers.”

The rupee also had help from an appreciating euro, which gained after US Federal Reserve Chairman Ben Bernanke said another round of booster dose is in the offing. “The Fed chairman said they (authorities) are considering the case for bond buying under quantitative easing as the economy is still far from improving. These comments contributed to sharp gains in the euro, thereby helping the Indian rupee to gain,” said India Forex Advisors in a note.

The Fed chief, however, did not specify on an action plan.

The euro rose to $1.26 on Monday from $1.25 levels seen early last week.

Traders said volumes were thin on account of a public holiday, due to Labour Day, in the US. This, coupled with weak performance of the domestic equity markets, pulled the rupee from the day’s high levels.

The rupee touched an intra-day high of 55.41 and low of 55.60 against the greenback. In August, the rupee traded largely between 55 and 55.75 a dollar.

The Sensex and Nifty fell by 0.3 per cent on Monday. Foreign institutional investors net sold Rs 54 crore from Indian equity markets on Monday, according to data from the Bombay Stock Exchange.