The Reserve Bank of India (RBI) intervened again yesterday, but this time to arrest the appreciation of the rupee. Market players were, however, careful not to arrive at any conclusions on RBIs exchange rate management policy.
The rupee see-sawed against the dollar yesterday, touching an intra-day high of 36.27 and a low of 36.415 before closing at 36.36-37, marginally weaker than Thursdays close of 36.33-34. The rise of the rupee was halted when the RBI reportedly bought $ 30 million.
The six month annualised premium also closed below the psychological floor of six per cent at 5.9 per cent yesterday, against Thusdays closing of six per cent. The one year premium closed at 6.4 per cent, the same as on Thursday.
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Treasurers feel that it is unlikely that the central bank is indicating an intervention band of 36.30 and 36.70, saying it was more likely that the RBI bought dollars to curb the sharp rupee appreciation.
According to Ravi Pai, vice president, forex, HDFC Bank, The rupees sharp appreciation of 21 paise over the last three days is indicative of volatility. Also, there were expectations that the rupee would rise further. The RBI bought dollars to curb this volatility. At this point to arrive at any other conclusion would be too premature.
Pai added that not so long ago, when the rupee was depreciating sharply, RBI was selling dollars at the 36.30 levels. Hence, it would be incorrect to assume at this stage that RBI is looking at a band. RBI has often indicated that its intervention was to curb volatility, since volatility creates uncertainty.
During the days activity, dollar inflows from exporters was strong. Demand however, lagged behind as most importers made their near term purchases when the rupee was depreciating. With half-an-hour, the rupee climbed to 36.27-29. Soon after, the RBI entered the market buying spot dollars outright. By 11:00 AM, the rupee was down at 36.37-38, and following another bout of intervention, it slipped to 36.40-42. It hovered around these levels for a while, but slowly recovered once corporates moved out of the market. By 2:30 PM it was quoting at 36.35-36 and continued to hover around this level till the close of trading.