Indian rupee recovers from 5-wk lows; outlook weak after RBI

Tue Oct 30, 2012 5:21pm IST

Related Topics

Priyanka Gandhi Vadra, daughter of Congress party chief Sonia Gandhi, adjusts her flower garlands as she campaigns for her mother during an election meeting at Rae Bareli in Uttar Pradesh April 22, 2014. REUTERS/Pawan Kumar

Election 2014

More than 814 million people — a number larger than the population of Europe — are eligible to vote in the world’s biggest democratic exercise.  Full Coverage 

* USD/INR ends at 53.96/97 vs prev close of 54.08/09

* Pair hits session high at 54.195, highest since Sept 21

* Outlook for rupee muddled; RBI keeps rates on hold

By Subhadip Sircar

MUMBAI, Oct 30 (Reuters) - The Indian rupee recovered from a five-week low hit on Tuesday to end the session with mild gains on the back of a falling dollar, but the outlook for the local currency remains weak after the central bank kept interest rates unchanged.

The disappointment over the Reserve Bank of India decision to keep the repo rate on hold at 8 percent was compounded after the central bank signalled no further policy easing would take place until the January-March quarter of next year.

The RBI's decision comes despite increased political pressure from the government, which last month unveiled a slew of fiscal and economic reforms, while Finance Minister P. Chidambaram on Monday pledged to contain the fiscal deficit.

The focus will now remain on the government to continue its commitment with tangible steps towards reviving growth and shoring up the country's finances, analysts said.

"A combination of pushing rate easing further away, and expectations of higher inflation and slower growth, will weigh on sentiment," said Dariusz Kowalczyk, senior economist and strategist for Asia ex-Japan for Credit Agricole in Hong Kong.

"The forecasts also make it more difficult for the RBI to trust the government's fiscal target, and indeed the central bank suggested it will wait for proof of consolidation."

The partially convertible rupee ended at 53.96/97 p er dollar, higher than its previous close of 54.08/09. It fell to a session low of 54.195, its lowest since Sept. 21.

Dealers said gains in the euro on the back of lower Spanish and Italian bond yields helped offset the rupee's losses. The local unit was also helped earlier in session by dollar selling by a software firm and a large private refiner.

The lack of a rate cut from the central bank threatens to continue a period of consolidation for the rupee, which rallied to a monthly high of 51.32 on Oct. 5, the highest since April, on the back of the government's fiscal and economic reforms.

The central bank on Tuesday also cut its baseline economic growth forecast for the fiscal year to 5.8 percent from 6.5 percent, while raising its estimate for wholesale price inflation to 7.5 percent from 7 percent.

Although few analysts expect the rupee to fall back towards the record low of 57.32 seen in late June, a lack of triggers could lead to range-bound trading until the end of the calendar year, they said.

"It will take improvement in data for the currency to see a sustained recovery, and for sentiment towards India to improve in a lasting way," said Kowalczyk, who has a year-end target for the rupee at 54.50.

In the offshore non-deliverable forwards market, the one-month contract was at 54.29 while the three-month was at 54.82.

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 closed at around 54.27 with a total traded volume at $5.2 billion. (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

RAINFALL THIS YEAR

REUTERS SHOWCASE

Election 2014

Election 2014

Thousands mob Modi as election race starts in Varanasi.  Full Article 

Monsoon Forecast

Monsoon Forecast

Met office rules out surplus monsoon in 2014.  Full Article 

Facebook's Performance

Facebook's Performance

Facebook Q1 revenue grows 72 percent on rising mobile ads.  Full Article 

Earnings Season

Earnings Season

Bharti Infratel Q4 net profit jumps 64 percent.  Full Article 

Solar Dispute

Solar Dispute

Green groups urge U.S. to drop solar trade case against India.  Full Article 

Oil Imports

Oil Imports

India to make May-July oil payments to Iran - sources.  Full Article 

Rice Exports

Rice Exports

India may cede top rice exporter spot under Southeast Asian price onslaught.  Full Article 

Reuters India Mobile

Reuters India Mobile

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