RBI intervenes as rupee breaches 64/$ mark

But still below its fair value, say experts

The Reserve Bank of India (RBI) intervened in the foreign exchange market to stem the rupee slide, which touched fresh all time lows in early trade today.

The rupee breached 64 per dollar in early trade to hit 64.13. State-run banks sold dollars, which helped it to pull back, dealers said. The rupee was trading at 63.72/$ at 10.40am.

"The rupee is weakening due to month-end dollar demand from importers. This demand is expected to continue due to which rupee will weaken further," said a forex dealer of a public sector bank.

RBI has been cautious in selling dollars as the forex reserves (which is about $280 billion) of the country could only cover six and half months of exports. The present levels of reserves are lower than what is seen as comfort for currency stability.

Bankers also said the rupee has not yet reached its fair value and further pressure will be there on the currency.

"The fair value of the rupee should be Rs 65 per dollar, according to me. It has not touched that level still because of the steps by the Reserve Bank of India," Sandeep Gonsalves, forex dealer, Mecklai & Mecklai.  

With the country struggling to fund its current account deficit, which was at a record high in FY13, there is pressure on the currency.

"Monetary policy decision-making by the central banker in the upcoming meet will become even more challenging considering the complex domestic and international dynamics at play. The Indian economy is reeling under pressure, not only due to the fears of flight of capital ahead of the Fed’s expected move of QE taper, but also due to the negative domestic economic fundamentals that are driving the Rupee weaker. Concentrated measures and efforts by the RBI are likely to show an impact in the long run but in the short-term, the Rupee is expected to witness a bearish ride," said Dinesh Thakkar, Chairman & Managing Director, Angel Broking.

The central bank will announce its mid quarter review of monetary policy on 18 September which will be the first policy review by the new central bank governor Raghuram Rajan, who takes charge on 5 September.