The rupee weakened ahead of the two-day US Federal Open Market Committee (FOMC) meeting as the Street is jittery about the extent of tapering of the bond-buying programme known as the third round of quantitative easing (QE3). The Street expects the US Federal Reserve to reduce its bond-buying programme from the current $85 billion a month, on the back of economic progress made over the past year.
The rupee ended at 63.37 against the dollar on Tuesday against the previous close of 62.85, a fall of 0.83 per cent — its steepest fall in two weeks. The currency had opened at 63.34 on Tuesday and, during intra-day trades, it touched a high of 62.96 and a low of 63.64 against the greenback. Although there was dollar sale by custodian banks, the rupee weakened due to tapering concerns.
“If the tapering is above $10 billion, it will impact the emerging economy currencies including India’s. In the next couple of days, I see a range of 63-64 for the rupee against the dollar,” said Abhishek Goenka, founder and CEO of India Forex Advisors. The Street has factored in tapering to the tune of $10 billion.
The rupee has weakened 16.75 per cent since the start of this financial year. Even though the Reserve Bank of India (RBI) has taken a host of measures to prop the rupee, volatility remains. Last month, the rupee had touched an all-time low of 68.85 against the dollar in intra-day trade on the back of heavy month-end dollar demand.
India’s foreign exchange reserves fell by $685.1 mn for the week ended September 6 to $274.81 bn, according to RBI data released on Friday. The reserves are at a three-year low. Foreign exchange reserves had stood at $272.78 bn for the week ended June 11, 2010.