Rupee hits 53 versus dollar, sparks suspected RBI action

MUMBAI Wed May 2, 2012 7:09pm IST

Indian currency of different denominations are seen in this picture illustration taken in Mumbai April 30, 2012. REUTERS/Vivek Prakash

Indian currency of different denominations are seen in this picture illustration taken in Mumbai April 30, 2012.

Credit: Reuters/Vivek Prakash

Related Topics

MUMBAI (Reuters) - The rupee dipped below 53 to the dollar on Wednesday, nearly touching a four-month low, as oil importers bought the U.S. currency, but suspected Reserve Bank intervention helped it recoup some losses.

Though the rupee is likely to continue facing strong support at the 53 level in the near-term, traders expect further falls, given India's fiscal and economic challenges, and fears that waning foreign flows will worsen the current account deficit.

Moreover, dealers say the central bank has limited firepower to intervene should the rupee continue to fall, given dollar sales would exacerbate an acute liquidity crunch in India's banking system.

Economists also say India's relatively modest forex reserves -- with the lowest import cover since 1996 according to a recent Bank of America-Merrill Lynch report -- do not provide enough ammunition for a strong defense of the rupee.

"The RBI was not so aggressive in intervening. They also feel that the rupee should weaken given the macroeconomic fundamentals. They will only cap the volatility," said Hemal Doshi, chief financial strategist at Geojit Comtrade.

The rupee fell to a low of 53.02 to the dollar on Wednesday, a level last seen on Jan 5, before pulling back to close at 52.96/97 levels. It had closed at 52.73/74 on Monday.

Four dealers said that state-run banks were seen selling dollars when the rupee broke below 53, which they said was likely on behalf of the Reserve Bank of India.

Some dealers said the RBI also intervened in the rupee forwards market to offset the liquidity impact of its spot selling.

"There were rumours of RBI intervention in spot market through nationalised banks and simultaneous action in FX forwards and bonds to neutralize the impact on money market liquidity," said Paresh Nayar, head of fixed income and forex trading at First Rand Bank.

The one-month offshore non-deliverable forward contracts were at 53.32.

In the currency futures market, the most-traded near-month dollar-rupee contracts on the National Stock Exchange, the MCX-SX and the United Stock Exchange all ended around 53.26 on a total volume of $4 billion.

(Additional reporting by Archana Narayan; Editing by Rafael Nam)

FILED UNDER:
Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.

  • Most Popular
  • Most Shared

FRESH RULES

A man speaks on his mobile phone in front of the Reserve Bank of India (RBI) seal at the RBI headquarters in Mumbai July 30, 2013. REUTERS/Vivek Prakash/Files

RBI says all companies must apply 2-step payments for credit cards

The Reserve Bank of India said that all transactions involving domestic credit cards must follow rules requiring additional verification, a stance that could impact companies such as Uber Technologies Inc that provide more simple app-based purchases.  Full Article 

REUTERS SHOWCASE

Record Highs

Record Highs

Nifty touches record high; software stocks gain.  Full Article 

New Adviser

New Adviser

Arvind Subramanian likely to be chief econ adviser.  Full Article 

Pricing Mechanism

Pricing Mechanism

Govt sets up a four-member panel to re-examine gas pricing.  Full Article 

Royalty Rates

Royalty Rates

India to hike iron ore royalty, miners may struggle to pass on extra cost.  Full Article 

Diesel Deregulation

Diesel Deregulation

Oil ministry to seek Cabinet nod on diesel deregulation - sources  Full Article 

Commodities

Commodities

Gold near two-month low; set for weekly drop on interest rate fears  Full Article 

Reuters Exclusive

Reuters Exclusive

Apple iPhone 6 screen snag leaves supply chain scrambling   Full Article 

Helping Regional Mills

Helping Regional Mills

Govt raises sugar import duty to 25 pct from 15 pct.  Full Article 

Curbing Risks

Curbing Risks

RBI to lower ceiling on bank loans to a single corporate group.  Full Article 

Reuters India Mobile

Reuters India Mobile

Get the latest news on the go. Visit Reuters India on your mobile device.  Full Coverage