The Indian rupee on Tuesday recouped some of its losses against US dollar after the authorities had introduced measures to arrest its free fall. The local currency ended at 60.14/USD, a rise of 48 paise or 0.80 percent higher than its previous close at 60.62, a record low closing rate.
The Indian rupee on Tuesday recouped some of its losses against the US dollar after the authorities had introduced measures to arrest its free fall. The local currency ended at 60.14/USD, a rise of 48 paise or 0.80 percent higher than its previous close at 60.62, a record low closing rate.
The Reserve Bank of India (RBI) on Monday late evening banned proprietary trading. At the same time, the Securities Exchange Board of India (SEBI) raised margin requirements and curtailed position limits for currency futures in an attempt to curb speculation in rupee trades and bring down volatility.
"These moves signal authorities' intent to stall the rupee depreciation streak," said Radhika Rao, group research - DBS Bank (Singapore).
"It might prove short-lived. For a more lasting effect, alongside administrative steps and regular intervention, it is imperative to provide a visibility on the flows, which will also provide a buffer to the falling FX reserves stock. In this respect, a non-resident or sovereign bond issuance might prove useful. Recent official remarks, however, suggest that such a move is not imminent."
The ban on the proprietary trading led to some uncertainty initially among currency traders. In the morning trade, some resorted to panic selling of dollars. This pushed the rupee to touch intra day high at 59.65/USD. Later, the market absorbed it and got back to a stable mode. Market fundamentals remain unchanged, traders said.
"In the late afternoon trade, some rumours were agog about SEBI postponing its curbs on currency futures market. Accordingly, people who had built short positions went to cover those. However, there was no official declaration on this and rumours fell on deaf ears. Additionally, some defence related dollar buyings also put pressure on the rupee," said Navin Raghuvanshi, vice president (Treasury) at Development Credit Bank (DCB).
According to the market participants, the State Bank of India (SBI) was seen buying dollars on behalf of the government, which may be required to make dollar payments against its defence purchases.
The rupee was trading in the range of 60.10-60.14 for quite a few hours. It was due to those sudden developments, it dropped beyond Rs 60.40 level during the last few hours of the trade.
"We expect market volatility from the Fed QE (Quantitative Easing) tapering fears to subside, although domestic sources of worry will limit the headroom for the rupee. Renewed concern over fiscal deterioration, financing the trade account shortfall and rating downgrade risks, are the key areas of concern,” said Rao from DBS.