 "RBI intervention triggers stop-losses in the rupee")
The rupee fell to almost 67 a dollar on Friday but closed only slightly lower than on Thursday, after the Reserve Bank of India (RBI) intervened and large dollar sales by an exporter triggered stop-losses in banks that were betting on a bigger fall.
After opening at 66.9100, the rupee rapidly fell to 66.99, prompting the central bank to intervene. The RBI’s intervention cooled the market and exporters came forward to sell dollars, resulting in the rupee closing at 66.6850. The rupee had closed at 66.61 on Thursday. Once dollar sales by exporters increased, stop-losses were triggered in some foreign banks that had gone long on the dollar.
RBI’s reluctance to support speculative trades is understandable because the rupee is strong against major currencies except the dollar. The 36-currency trade-based real effective exchange rate for the rupee was 124.32 at the end of October 2015. The REER, which takes into account the rupee’s competitiveness, was 112.77 in 2013-14, 120.02 in 2014-15 and 119.78 a year ago. In the past, RBI has intervened to depreciate the rupee when the REER crossed 115.
Considering the rupee’s strength against other currencies, a slide against the dollar now was at best speculative, currency dealers said.
On a segregated level, the rupee has appreciated against seven of the G-10 currencies in the year to date: 10.855 per cent against the New Zealand dollar, 5.603 per cent against the euro, 3.043 per cent against the yen, and 8.832 per cent against the Canadian dollar. The rupee has fallen 5.464 per cent against the US dollar, 4.446 per cent against the Swiss franc, and 2.479 per cent against the pound sterling.
Even as the rupee was expected to be volatile in the run-up to the US Federal Reserve meeting later this month, over the next three months it could appreciate towards the sub-66 level, he added. This may be the reason why the RBI decided to break the speculation in dollar-rupee trades on Friday. The RBI intervened in opening trades to prevent the rupee from touching the psychological 67 level after the European Central Bank’s stimulus move failed to enthuse markets. According to currency dealers, there was a large chunk of dollar sales from a company whose identity could not be ascertained.
Large dollar sales by the exporter in the middle of the trading session spelt doom for many banks that were going long on dollar. Once the rupee appreciated beyond 66.78, stop losses were triggered and investors had to sell dollars, strengthening the local currency. The morning lows were a good level for exporters to sell dollars, said Satyajit Kanjilal, managing director of Forexserve, a currency consulting firm.
“The RBI will not allow levels like these that are fueled by speculation. If it was genuine demand, the RBI might not have come in the way, but clearly Friday’s move was speculative,” Kanjilal said, adding the rupee might touch 67.50 in the coming days but would climb back to its current level. The dollar index, which measures the greenback’s strength against major global currencies, was trading at 98.185, having recently crossed 100.
The yields on the 10-year gilt rose slightly to 7.745 per cent and the Sensex fell 248.51 points, or -0.96 per cent.
While the RBI had no issues in letting the rupee depreciate when market forces demanded, it would not push a depreciation on its own as a policy tool, RBI Governor Raghuram Rajan had said after a monetary policy review on Tuesday.
“We do not see the exchange rate as something we can manipulate in a significant way to attain whatever macro objectives we have,” Rajan had said, adding the central bank’s objective was to minimise exchange rate volatility rather than target a particular level.
After opening at 66.9100, the rupee rapidly fell to 66.99, prompting the central bank to intervene. The RBI’s intervention cooled the market and exporters came forward to sell dollars, resulting in the rupee closing at 66.6850. The rupee had closed at 66.61 on Thursday. Once dollar sales by exporters increased, stop-losses were triggered in some foreign banks that had gone long on the dollar.
RBI’s reluctance to support speculative trades is understandable because the rupee is strong against major currencies except the dollar. The 36-currency trade-based real effective exchange rate for the rupee was 124.32 at the end of October 2015. The REER, which takes into account the rupee’s competitiveness, was 112.77 in 2013-14, 120.02 in 2014-15 and 119.78 a year ago. In the past, RBI has intervened to depreciate the rupee when the REER crossed 115.
Considering the rupee’s strength against other currencies, a slide against the dollar now was at best speculative, currency dealers said.
On a segregated level, the rupee has appreciated against seven of the G-10 currencies in the year to date: 10.855 per cent against the New Zealand dollar, 5.603 per cent against the euro, 3.043 per cent against the yen, and 8.832 per cent against the Canadian dollar. The rupee has fallen 5.464 per cent against the US dollar, 4.446 per cent against the Swiss franc, and 2.479 per cent against the pound sterling.
Even as the rupee was expected to be volatile in the run-up to the US Federal Reserve meeting later this month, over the next three months it could appreciate towards the sub-66 level, he added. This may be the reason why the RBI decided to break the speculation in dollar-rupee trades on Friday. The RBI intervened in opening trades to prevent the rupee from touching the psychological 67 level after the European Central Bank’s stimulus move failed to enthuse markets. According to currency dealers, there was a large chunk of dollar sales from a company whose identity could not be ascertained.
Large dollar sales by the exporter in the middle of the trading session spelt doom for many banks that were going long on dollar. Once the rupee appreciated beyond 66.78, stop losses were triggered and investors had to sell dollars, strengthening the local currency. The morning lows were a good level for exporters to sell dollars, said Satyajit Kanjilal, managing director of Forexserve, a currency consulting firm.
“The RBI will not allow levels like these that are fueled by speculation. If it was genuine demand, the RBI might not have come in the way, but clearly Friday’s move was speculative,” Kanjilal said, adding the rupee might touch 67.50 in the coming days but would climb back to its current level. The dollar index, which measures the greenback’s strength against major global currencies, was trading at 98.185, having recently crossed 100.
The yields on the 10-year gilt rose slightly to 7.745 per cent and the Sensex fell 248.51 points, or -0.96 per cent.
While the RBI had no issues in letting the rupee depreciate when market forces demanded, it would not push a depreciation on its own as a policy tool, RBI Governor Raghuram Rajan had said after a monetary policy review on Tuesday.
“We do not see the exchange rate as something we can manipulate in a significant way to attain whatever macro objectives we have,” Rajan had said, adding the central bank’s objective was to minimise exchange rate volatility rather than target a particular level.