Rupee weakens to almost 59 a dollar, recovers

Closes at all-time low of 58.40; govt might raise FDI cap in some sectors to attract inflows

The rupee, which on Tuesday fell to almost 59 a dollar, bounced back to close at 58.40 — 26 paise, or 0.44 per cent, weaker than yesterday’s all-time closing low of 58.14 a dollar — after, market participants claimed, the Reserve Bank of India (RBI) intervened in the foreign exchange market to sell dollars. According to dealers, the central bank’s move came when the rupee was trading at 58.93 and there was dollar selling from exporters that pulled the rupee back from the day’s low.

RBI has been cautious in its intervention due to the depleting foreign exchange reserves, which have come down by $5 billion since the start of the financial year (see chart). The rupee has fallen 8.5 per cent during the period and 3.34 per cent this month.

“RBI’s strategy of not selling dollars, against the trend, might not be effective. The idea is to choose the level where the demand-supply equilibrium sets in, with importers in a withdrawal mode and exporters in a hurry to absorb excess weakness of the rupee. The currency’s bearish mood reversed a little at 58.80-59.00, making it attractive for exporters, and RBI was seen joining the exporters in their selling spree to guide the correction to 58.43,” said J Moses Harding, head (Alco and economic & market research) IndusInd Bank.

In New Delhi, Chief Economic Advisor Raghuram Rajan said the government, RBI and Sebi would take “warranted” action to stall the rupee’s sharp fall. He added RBI would factor in the rupee’s fall while announcing its policy on Monday.

“RBI always had to consider a large number of factors in deciding on its policy... The level of the rupee will be an input. RBI has said on a number of occasions it will consider it,” Rajan said.

He was addressing the media after the rupee hit an all-time intra-day low of 58.95 a dollar. “What its net effect will be the policy rate decision will not be right for me to speculate,” he said.

He also said the government was considering raising foreign direct investment limits in many sectors to attract more inflows to finance the current account deficit.

“Going forward, the government will undertake measures to ensure the current account deficit is safely financed,” Rajan said.