Rupee rebounds; RBI intervention debated

MUMBAI Fri May 4, 2012 6:24pm IST

An employee counts rupee notes at a cash counter inside a bank in Agartala, December 31, 2010. REUTERS/Jayanta Dey/Files

An employee counts rupee notes at a cash counter inside a bank in Agartala, December 31, 2010.

Credit: Reuters/Jayanta Dey/Files

Related Topics

MUMBAI (Reuters) - The rupee staged a late recovery on Friday that sparked debate about Reserve Bank intervention, but is still within reach of a lifetime low after posting a fifth successive week of falls on rising fears of foreign outflows.

The rupee, already reeling under the impact of a widening capital account deficit, a slowing economy, and fears about policy reforms, is also being undone by uncertainty about taxation of foreign investors.

The falls in the rupee have put markets on heightened alert about intervention, after the Reserve Bank of India was seen selling dollars in the previous two sessions.

The local unit recovered most of the day's losses in afternoon trading on Friday, but views were split about whether the central bank had again stepped in.

Dealers said the evidence was not clear cut, pointing to dollar sales of about $200 million from a large engineering company at around 53.80/85 levels late in the session.

"It seems that RBI came in to supply the market at around 53.65 levels. But the rupee's recovery was largely due to squaring off of positions by foreign banks ahead of U.S. non-farm payrolls and selling by a large corporate," said the chief dealer with a foreign bank.

The rupee settled at 53.47/48 after falling to as low as 53.95 in intraday trade. It had closed at 52.96/97 on Thursday.

The currency remained on the back foot for most of the session after India said it would review its tax treaty with Mauritius, sending the BSE Sensex down 1.8 percent given most of the foreign portfolio investment is routed through the small island country.

Next week could prove important given the finance ministry will submit to parliament the controversial bill containing the taxation proposals.

The outlook for the rupee remains weak, with traders largely expecting the currency to touch the record lows of around 54.30 hit in December.

India's limited foreign exchange reserves and its acute liquidity deficit means the country may not be able to defend the rupee for long.

"INR remains in the doghouse and continues to be a touch-me-not due to the adverse balance of payments," Rajeev Malik, senior economist at CLSA, wrote in a report.

The one-month offshore non-deliverable forward contracts were at 53.81.

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 53.77 on a total volume of $5.6 billion.

(Editing by Rafael Nam)

FILED UNDER:
Photo

After wave of QE, onus shifts to leaders to boost economy

DAVOS, Switzerland - Central banks have done their best to rescue the world economy by printing money and politicians must now act fast to enact structural reforms and pro-investment policies to boost growth, central bankers said on Saturday.

Reuters Showcase

Facebook Earnings

Facebook Earnings

Facebook tops Wall Street revenue target in 4th quarter.  Full Article 

Japanese Hostage

Japanese Hostage

Islamic State said to set new deadline for hostage swap  Full Article 

Cricket World Cup

Cricket World Cup

Batting holds key for team India in World Cup  Full Article 

Australian Open

Australian Open

Sharapova eases into fourth Melbourne final  Full Article 

Photo

Laser Pioneer Dies

Laser's co-inventor, Nobel laureate Charles Townes, dead at 99  Full Article 

Rohingya Muslims

Rohingya Muslims

Rohingya refugees say traffickers in Malaysia abuse and kill.  Full Article 

Reuters India Mobile

Reuters India Mobile

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