Rupee continues to rise on Fed Chair Powell's take on taper

Experts say RBI won't allow Rs to appreciate out of sync with Asian currencies

The Indian rupee continued its good run amid assurance that the global liquidity glut will continue for a while and the US Federal Reserve (Fed) is in no tearing hurry to raise rates.

The rupee closed at 73.3 a dollar, up from its previous close of 73.7 a dollar. The rupee had closed strong on Friday ahead of the Jackson Hole speech of Fed Chairman Jerome Powell. The Reserve Bank of India (RBI) had not intervened on Friday.

On Tuesday, the central bank stepped in to stem the rising tide in rupee as dollars poured in onshore ahead of the quarterly index rebalancing of the MSCI at the end of the month.

“There will be no inclusion or exclusion in the MSCI index. Besides, there was a good amount of interest seen in local stock, and we saw the dollar inflow on account of Axis Bank allotment of additional tier 1 bonds,” said a senior currency dealer.

The rupee rose 0.57 per cent on Monday, following other Asian currencies that also gained against the dollar. The dollar witnessed a broad-based weakness, with the dollar index falling below 93, from the earlier 93.15 levels. The index, which measure’s the greenback’s strength against major global currencies, was at around 92.6 on Monday.

A strong pipeline of initial public offerings and qualified institutional placements will likely keep the dollar inflows strong, but the central bank will not allow the rupee to appreciate out of sync with other Asian currencies, observed experts. The RBI, therefore, intervened to stem the appreciation on Monday.

Anindya Banerjee, deputy vice-president, currency and derivatives at Kotak Securities, said the dollar-rupee can touch even 73 levels, as stocks and commodities rally and the US dollar gains.

“Broadly, any appreciating move is not favourable for exporters. Hence, the RBI could try to keep it in depreciating mode by building up its dollar reserves,” said Amit Pabari, managing director of CR Forex.

This is also an opportunity for importers to cover their position.

“The volatility is likely to remain high. There are chances that the dollar-rupee pairing could recover to 74-74.1 levels,” said Pabari.

The 10-year bond yields, meanwhile, fell 4 basis points to close at 6.22 per cent, taking a cue from US yields, which had softened after Powell’s speech.