Rupee weakens ahead of FOMC meet

Street expects that US central bank may reduce its bond-buying program from current $85 billion per month

The rupee weakened ahead of the two-day US Federal Open Market Committee (FOMC) meeting as the Street is jittery about the extent of tapering of the bond-buying programme known as the third round of quantitative easing (QE3). The Street expects the US Federal Reserve to reduce its bond-buying programme from the current $85 billion a month, on the back of economic progress made over the past year.

The rupee ended at 63.37 against the dollar on Tuesday against the previous close of 62.85, a fall of 0.83 per cent — its steepest fall in two weeks. The currency had opened at 63.34 on Tuesday and, during intra-day trades, it touched a high of 62.96 and a low of 63.64 against the greenback. Although there was dollar sale by custodian banks, the rupee weakened due to tapering concerns.

“If the tapering is above $10 billion, it will impact the emerging economy currencies including India’s. In the next couple of days, I see a range of 63-64 for the rupee against the dollar,” said Abhishek Goenka, founder and CEO of India Forex Advisors. The Street has factored in tapering to the tune of $10 billion.

The rupee has weakened 16.75 per cent since the start of this financial year. Even though the Reserve Bank of India (RBI) has taken a host of measures to prop the rupee, volatility remains. Last month, the rupee had touched an all-time low of 68.85 against the dollar in intra-day trade on the back of heavy month-end dollar demand.

 

On Monday, the rupee had closed at a one-month high. “Today’s (Tuesday) weakness is due to corrections. If the FOMC limits its tapering up to $10 billion, it will be a respite for the market. Anything above that will again result in weakening. However, RBI may not allow the rupee to weaken strongly,” said Partha Bhattacharya, deputy CEO of Mecklai Financial.

Of late, RBI has been intervening in the foreign exchange market through state-run banks, due to which the reserves have been depleting.

India’s foreign exchange reserves fell by $685.1 mn for the week ended September 6 to $274.81 bn, according to RBI data released on Friday. The reserves are at a three-year low. Foreign exchange reserves had stood at $272.78 bn for the week ended June 11, 2010.