After a gap of four months, the rupee fell below 53 to the dollar in early trade on Wednesday, triggering hope of possible intervention by the central bank.
Traders said there was modest supply from public sector banks on behalf of the Reserve Bank of India (RBI), setting off dollar selling by exporters. However, this was not sufficient to meet the demand in the market, and the rupee slipped back to close near the day’s lows.
The closure was at 52.96 after trading between 53.01 and 52.60 per dollar. It had closed at 52.73 on Monday. According to market participants, the mere presence of the central bank helped the rupee regain 15 paise intraday, though intervention was only $100-150 million.
“Dollar supplies from exporters come in snippets whenever RBI is seen active to arrest further depreciation. With every uptick, there is fear of intervention,” said a forex dealer with a private sector bank. The central bank was seen issuing one-year forwards as the premium in the segment fell after the rupee hit 53-levels in the spot market.
Traders said public sector oil companies were the major buyers, while supply was seen from exporters and public sector banks. There was rupee weakness despite foreign fund inflows in the volatile equity markets. According to the Bombay Stock Exchange, there were foreign fund inflows of Rs 237 crore in the domestic equity markets that closed almost flat as against Monday’s close.
The rupee has lost four per cent against the greenback since the start of the current financial year. The domestic currency is seen weak on the back of a gloomy domestic economic outlook.
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Arun Khurana, country head, global markets group, IndusInd Bank, said he expected the rupee to trade in a narrow band of 52.5-53.5 in the near term. “However, high crude (oil) prices, weak foreign investor sentiment and concerns on the large current account deficit are likely to push the currency to 54-levels in three months,” he added.
RBI intervention in the spot market was $20 billion in September 2011-February 2012. The central bank was also active in the forwards segment from November. Economists said depleting foreign exchange reserves might limit the central bank’s capacity to curb volatility in the rupee-dollar market.
As on April 20, India’s foreign exchange reserves were $294 bn, down by $2 bn since the start of the calendar year.