The Reserve Bank of India (RBI) today intervened in the foreign exchange market, albeit in a small way, resulting in the rupee weakening marginally after hitting a 19-month high yesterday. Dealers estimate RBI today bought $300-$500 million.
RBI data show its last significant intervention was in June last year, when it bought $1.27 billion and sold $235 million, resulting in net purchases of $1.04 billion. The rupee was moving between 46.75 and 48.94 against the dollar at that point. The highest net monthly intervention since then was $181 million in August 2009.
The rupee today ended at 44.45 for a dollar on a volatile day, against 44.44 on Monday. Intra-day, the rupee rose to a high of 44.34 a dollar, prompting the central bank to step in.
“After the sharp move in the last few days, there is a possibility of the RBI buying dollars and infusing rupee liquidity. They may also do the same in the forward dollar market to avoid any immediate infusion of rupee liquidity,” said Ananth Narayan G, head of rates, credit, South Asia, at Standard Chartered Bank.
A senior dealer with an associate bank of State Bank of India said RBI intervened when the rupee touched 44.37 against the greenback. Soon the upward pressure tapered off and the Indian currency was moving around 44.47.
The rupee rose 2.7 per cent in March, its biggest monthly gain since May last year, on the back of foreign portfolio inflows of about $4.4 billion.
A large state-owned bank and a Mumbai-based public sector lender today bought the greenback at around 44.34-44.35 per dollar, said dealers. A large state-owned oil company also bought around $50 million at Rs 44.49.
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A senior executive of a large public sector bank said the RBI action was necessary to stem a possible adverse effect on exporters’ earnings.
According to dealers, a fall in euro and pound sterling prompted banks to buy the dollar. The euro was at $1.34 as against $1.35 on Monday, while the pound sterling was at $1.51 as against $1.53.
“Importers’ dollar demand, the dollar’s strength overseas coupled with a flat closing of the stock market against an expectation of good rally led to the rupee’s decline,” said R K Gurumurthy, treasurer, ING Vysya Bank. Shares fluctuated during the day with the 30-share BSE index ending marginally up 0.03 per cent.
Dealers expect the rupee to have a strengthening bias going ahead due to the large capital inflows, but the gains may be limited if the central bank intervenes again in the foreign exchange market. Dealers expect the rupee to open weak against the dollar on Wednesday because banks may buy the greenback noting its rise against major currencies. The likely dollar demand from importers may add to the rupee's fall.