Rupee ends 58.39/$ after hitting record low, RBI intervenes

Moneycontrol Bureau

The Indian rupee on Tuesday hit a record low at 58.98 against the US dollar to close the day's trading at 58.39 compared with 58.14 ended on Monday. The local currency however, recouped its early losses after the Reserve Bank of India (RBI) had intervened to stem the local currency's sharp decline, traders said.

It was learnt that the central bank asked some state owned banks to sell US dollars when the local unit was trading at 58.95/USD. Banks including Union Bank of India, Canara Bank, SBI, Syndicate Bank and others were selling the greenback to tune of 4 - 5 billion, traders observed.

However, some traders were of opinion that some large institutional dollar sales helped regain some of its early losses.

"RBI is not worried by gradual depreciation of rupee against the US dollar," Ashutosh Khajuria, President – Treasury at Federal Bank told moneycontrol.com.

"It is the sudden volatility of the exchange rate that makes the regulator concerned. With around 3 percent difference between the rate of inflations in India and US, similar degree of rupee depreciation is nature against the greenback. After hitting record high, the local unit should stabilise at around 58.20 per dollar," he said.  

In US, the rate of inflation is around 2 percent while the wholesale price index (WPI) is at 4.9 percent.

According to Khajuria, the absense of overseas fund flows is putting pressure on the rupee. Earlier, inflows used to balance the rising current account deficit coupled with high inflation. Now, it is only one-sided.

Many believe, if RBI intervention happens repeatedly check rupee's slide to 59, it has to be assumed that the central bank is protecting a particular level at 59/USD.

"In June itself, in few short days Indian Rupee has depreciated over 4% against the US dollar and more so against the other currencies like Euro and Pound," said Anindya Banerjee, Currency Analyst, Kotak Securities:

"Fear of QE unwinding by the US central bank and overly short positioning in USD could have the reason behind the move. A weak rupee does not augur well for corporates which have un-hedged foreign currency loans. Over the near-term we could see a range bound action in USD/INR between 57.50 and 59.00, and a consolidation is warranted ahead of the US Fed meeting on 19th of June."

saikat.das@network18online.com