 "Rupee")
The Indian rupee rapidly fell to 66.99 against the US dollar in opening trade Friday, prompting the Reserve Bank of India (RBI) to intervene in the market to prevent the domestic currency touching the psychological level of 67 a dollar.
The dip in the Indian currency came after the European Central Bank’s (ECB) stimulus move failed to enthuse global markets.
The rupee opened at 66.91 against the dollar, a sharp deterioration over its Thursday’s closing of 66.66. The currency tumbled rapidly to 66.99, prompting some heavy dollar selling by nationalised banks, most likely on behalf of RBI, said currency dealers.
The level was a new 26-month low but the rupee was seen clawing back from the brink as the Indian central bank has given a clear signal, dealers said.
At 10.38 pm, rupee was trading at 66.8450 against the US dollar.
The dollar index, which measures the greenback’s strength against major global currencies, was trading at 97.847, having recently crossed 100.
The yields on the 10-year bond rose slightly to 7.7284%, while the Sensex fell 0.63%, or 163.75 points, to 25,722.83 points on the Bombay Stock Exchange.
“The market has overreacted and it was expected that RBI will step in. It is unlikely now that rupee will cross 67 level today,” said a senior currency dealer with a foreign bank. He declined to be name as he is not authorised to speak with the media.
In fact, it could be a good level for exporters to sell dollars, said Satyajit Kanjilal, managing director of Forexserve, a currency consulting firm.
“RBI will not allow levels like these that are fueled by speculation. If it was a genuine demand, RBI might not have come in the way, but clearly today’s move is knee-jerk and speculative,” Kanjilal said, adding rupee may touch 67.50 a dollar level next week for a brief period, but will strengthen back to the levels it is at now.
“USD/INR can be expected to remain volatile during December as FOMC meet outcome is on the 16th and foreign portfolio inflows would remain subdued due to year end. However over next two-three months we are expecting appreciation in INR towards sub 66 levels,” said Samir Lodha, managing director at QuantArt Markets Solutions, a corporate treasury consultant
Currency markets had been expecting the ECB to announce more liquidity measures through its own quantitative easing, but the European body only pared its deposit rates by 10 basis points to negative 0.3% but said its asset purchase programme will continue at least till march 2017. One basis point is one-hundredth of a percentage point.
Overnight, US Federal Reserve chair Janet Yellen testified before Congress that economic data suggests improvement in job market, indicating now could be the time for raising rates. The Fed is meeting on 15-16 December and is widely expected to raise rates for the first time in a decade.
While the Reserve Bank of India has no issues in letting the rupee depreciate when market forces demand, it will not push a depreciation on its own as a policy tool, RBI governor Raghuram Rajan said after the monetary policy review on Tuesday.
“We don't see the exchange rate as something we can manipulate in a significant way to attain whatever macro objectives we have,” Rajan said, adding the central bank’s objective is to minimise volatility in the exchange rate, rather than target a particular level.
