Rupee ends first quarter flat amid global tensions and dollar weakness

The rupee ended Q1 marginally weaker at 85.77 after volatile trading amid Iran-Israel tensions, IPO inflows, oil easing and RBI reducing short dollar positions

The rupee witnessed a volatile trading range during the first quarter of the current financial year but ultimately ended the period largely flat, 0.3 per cent weaker against the dollar. The domestic currency settled at 85.77 against the dollar on Monday, nearly unchanged from its level at the beginning of the quarter at 85.47 per dollar.

 

“There was considerable two-way movement in the rupee during the quarter,” said the treasury head at a private bank. “The currency weakened in April due to the global trade war, and again in June as geopolitical tensions escalated following the Iran-Israel conflict. These events led to a sharp depreciation in the rupee at the time. There was a phase where the rupee appreciated sharply towards 83.75, before bouncing back again to 86.70 levels. The last two weeks of the quarter saw renewed appreciation,” he added.

 

 

The local currency staged a strong recovery in the latter part of June, aided by broad-based dollar weakness, robust foreign inflows driven by recent IPO activity, and easing crude oil prices, according to market participants.

 

“We can say it was a choppy quarter for the rupee, but it closed almost flat,” said a market participant. 

 

The RBI’s outstanding net short dollar position in the forward market fell further to $45 billion by the end of May, against $52 billion at the end of April, according to the central bank’s latest data.

 

Of the $45 billion net short dollar position, $4.8 billion was in one-month contracts, $10.2 billion in one- to three-month tenures, and the remaining $30 billion position is set to mature between three months and a year. Around $20 billion in short positions are set to mature in more than a year.

 

“The RBI did not roll over the contracts in May — around $7 billion was maturing in the month — and in June the short positions could have decreased more to around $40 billion,” said a market participant.

 

Meanwhile, the RBI, in a notification on Monday, announced that following the extension of call money market hours to 7:00 pm, the Standing Deposit Facility (SDF) and Marginal Standing Facility (MSF) will now be available from 7:00 pm to 11:59 pm, effective Tuesday.

 

Currently, the SDF and MSF are available daily from 5:30 pm to 11:59 pm.