Rupee appreciates for second straight day

One-month offshore NDF is quoting at Rs 66.95 compared with previous close of Rs 68.32

On Friday, the rupee strengthened for a second consecutive day, owing to dollar sale by public sector banks, on behalf of the Reserve Bank of India (RBI). The currency opened at Rs 67 a dollar, tracking the non-deliverable forward (NDF) market. As month-end dollar demand from importers continued, it touched a low of Rs 67.43 a dollar. But later, it appreciated to close at 65.71 a dollar, a 1.34-per cent rise from its previous close of 66.59.

The one-month offshore NDF was quoted at Rs 66.95, against its previous close of Rs 68.32.

On Thursday, the rupee recorded its highest single-day rise in about 26 years, as RBI opened the foreign exchange swap window to meet daily dollar requirements of three public sector oil marketing companies.

But despite the two-day appreciation of the currency, experts remain pessimistic. “The global backdrop remains challenging due to tapering (of the bond-buying programme) by the US Federal Reserve and upside risks to oil prices arising from turmoil in West Asia. These factors are likely to keep dollar-rupee on a strong footing in the immediate future. Policy measures such as the announcement of a foreign exchange swap facility with RBI for India’s three largest public sector oil companies could lead to sharp pullbacks in dollar-rupee and immediate consolidation, but these are unlikely to preclude a renewed uptrend if the broad dollar strength persists,” Samiran Chakraborty, head of India research, Standard Chartered Bank, said in a note to clients.

Growth in gross domestic product during the quarter ended June stood at 4.4 per cent, against 4.8 per cent in the March quarter.

The fall in growth would dampen the sentiment next week and the rupee was expected to weaken again, currency dealers said. Since the beginning of this financial year, the rupee has weakened 21.06 per cent; since the beginning of this month, it has fallen 8.84 per cent. On Wednesday, the rupee fell to an all-time low of Rs 68.85, owing to heavy month-end dollar demand from importers.

Tracking the appreciation in the rupee, government bond yields fell on Friday. The yield on the 10-year 7.16 per cent benchmark government bond closed at 8.6 per cent, compared with its previous close of 8.77 per cent. The fall in yields was despite the bond auction for a notified Rs 17,000 crore devolving on primary dealers to the extent of Rs 2,505 crore.

Liquidity in the system continues to be tight, with banks borrowing about Rs 1 lakh crore on Thursday under RBI’s liquidity adjustment facility and marginal standing facility. Infusion of liquidity through open market operations stood at just Rs 6,230 crore, compared with a notified amount of Rs 8,000 crore.

“We can expect marginal respite in the first week of September due to redemption of government securities to the tune of Rs 45,000 crore. The cash management bills will also mature, due to which liquidity would return to the system,” said N S Venkatesh, chief general manager and head of treasury, IDBI Bank, and chairman of Fixed Income Money Market and Derivatives Association of India.