Indian rupee weakens on high demand for USD from foreign banks & importers
Foreign banks were the primary buyers of the greenback in early trade, likely on behalf of their foreign portfolio investor clients looking to exit their positions.
May 30, 2017 / 10:48 AM IST
At 10.44 IST, the rupee was trading at 64.69 to the dollar, 0.3 percent weaker than its previous close of 64.50, as high demand for the dollar weighed on the domestic currency.
Foreign banks were the primary buyers of the greenback in early trade, likely on behalf of their foreign portfolio investor clients looking to exit their positions, dealers said.
“The overnight fall was because of strength in the dollar and a general risk-off sentiment,” a dealer with a large state-owned bank said. He added that since it was the end of the month, there was also increased demand for the dollar from importers.
The dollar index, which measures the dollar’s strength against a basket of 6 other currencies, was trading at 97.67, 0.23 percent higher than its previous close. Emerging market currencies like the lira, won, ruble and the Indonesian rupiah were all trading 0.1-0.3 percent weaker.
Dealers said that the Reserve Bank of India (RBI) has been intervening in the currency market quite heavily over the last week or so. They said that the central bank is already past trying to control volatility and that it is now looking to keep the rupee from appreciating beyond 64 to the dollar.
“I think the confusion in the market right now is because there are voices arguing for a rate cut in the upcoming policy and the market wants to wait and watch,” said Anindya Banerjee of Kotak Securities. “Once the policy is done and the RBI remains hawkish, I think we will see the rupee appreciate again.”
The Indian debt market is currently generating a lot of interest among global investors, who typically come here for the higher real interest rate. So far this year, FPIs have net bought around USD 10 billion of Indian debt and around USD 8 billion of Indian equities.