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Rupee tests 54-level before closing higher at 53.79 as RBI gets into action

Mumbai, May 15 (PTI): The Indian rupee breached the psychologically crucial 54-level against the US dollar on Tuesday but recouped losses to end higher at 53.79 on “huge” dollar selling after the Reserve Bank of India intervened to prop up the local unit.

The rupee, which had been falling steadily for the past many days due to fundamental weakness in the economy like higher current account deficit, breached the key 54-level soon after trade resumed on Tuesday at 54.05.

It immediately touched its second lowest intra-day at 54.15 but the sentiment improved on suspected RBI intervention as public sector banks were seen selling dollars. The rupee finally settled at 53.79, showing a gain of 17 paise from its overnight close. It had recorded historical intra-trade low of 54.32 on December 15, 2011.

T.S. Srinivasan, general manager for treasury at Indian Overseas Bank, said: “ Rupee appreciated today due to intervention of the central bank in the market. It seems, there was huge selling of dollars in the market after the rupee opened beyond Rs 54 level.”

But market observers said the rupee's gain is temporary as it remains fundamentally weak and is likely to trade in the 55-58 range over the next 12 months.

Ritika Mankar Mukherjee, economist at Ambit Capital’s institutional equities division, said: “Even if the RBI decides to intervene decisively to bridge the current account deficit gap, the fact that the size of the BoP balance is a far more powerful driver of INR movement than RBI intervention, we expect the INR to depreciate further and head towards 55-58 INR/USD over the next 12 months.”

IDBI Bank Treasury Head N S Venkatesh said the central bank would not defend any particular level though Rs 54-level would remain as a psychological level for market participants.

Forex dealers said exporters were also selling dollars amid some weakness in the US currency overseas.

Some strong signs capital inflows also helped the rupee to sustain its gains during the day.

The dollar index, consisting of six major currencies, was down by about 0.1 per cent while New York crude oil was trading below $95 a barrel in European market on Tuesday.

Pramit Brahmbhatt, CEO, Alpari Financial Services (India), said: “The Euro regained after hitting to a low of around 1.2800 levels on some modest rise in German GDP numbers and also as the ECOFIN meetings begun raising some hopes for the euro zone.”        

The rupee premium for the forward dollar turned negative on fresh receivings by exporters.

The benchmark six-month forward dollar premium payable in October finished weak at 153-155 paise from Monday’s close of 158-160 paise and far-forward contracts maturing in April also settled lower at 262-264 paise from 270-272 paise.

The RBI fixed the reference rate for the US dollar at 53.8400 and for euro at 69.1730.

The rupee also recovered against the pound sterling to end at 86.57/59 from Monday's close of 86.72/74 and also recovered against the euro to 68.98/69.00 from 69.44/46. It recouped against the Japanese yen to 67.36/38 per 100 yen from last close of 67.62/64.