Mumbai, Aug. 29: The rupee bounced back today, snapping a three-day losing streak to close at 66.55 against the dollar, a rally of 225 paise.
The battered currency staged a recovery after the Reserve Bank of India opened a special, dollar-disbursing window for state-owned oil marketing companies.
Late on Wednesday evening, the RBI said the three oil companies — Indian Oil Corporation, Hindustan Petroleum Corporation Ltd and Bharat Petroleum Corporation Ltd — would be permitted to source their daily dollar requirements to import crude oil from the special window.
Until today, the three companies sourced dollars from the spot market. Since they were huge buyers of the greenback, it had led to an acceleration of the rupee’s value because of poor dollar supplies.
Estimates indicate that the three companies need at least $8.5 billion every month. The RBI’s decision to open a window for these entities will, therefore, mean that a good chunk of demand will come out of the spot markets, providing a breather to the Indian currency.
Forex circles said the demand from oil companies had in the past prompted speculative players to take positions in the market, exacerbating the pressure on the rupee.
The RBI’s actions had come on a day after the rupee closed at a record low at 68.80 to a dollar.
At the inter-bank foreign exchange market, the measure worked as the currency opened stronger at 66.90 to a dollar.
Although it fell to a low of 67.92 on dollar demand from importers and foreign institutional investors (FIIs), the unit bounced back on RBI intervention at various occasions to 66.51 before ending at 66.55, a rise of 3.27 per cent.
But forex experts wondered whether the rupee’s gain was sustainable. They reckoned that the move was unlikely to have a significant impact as prevailing conditions in India and overseas could continue to put pressure on the currency.
“What we need is consistent steps from the RBI and the government to help the rupee,” an analyst said.
In a report today, Indranil Sen Gupta, economist at Bank of America Merrill Lynch, said the RBI would have to take far more pro-active steps to rebuild forex reserves. If the status quo continues, the rupee could touch 75 per dollar by the end of 2014.
“The RBI will be hard pressed to sell $25 billion, and every dollar sold is likely to only raise further questions about the adequacy of forex reserves,” he said.
He felt the authorities must urgently look into launching a scheme to attract chunky forex inflows that include NRI or sovereign bonds or reviving FCNR (A) deposits.
Sengupta listed a couple of “shock and awe” options to calm sentiments in the volatile markets.
It could re-issue the 7-9 per cent, five-year forex-denominated NRI deposits with the risks being borne by the government as it had done in 1998 with the Resurgent India bonds and in 2001 with the India Millennium Deposit scheme, both of which raised $5 billion each.
It could raise another $5 billion a year through sovereign bonds if these were listed on the JP Morgan EMBI Global Diversified Index. It could also negotiate forex credit lines with other central banks but ruled out the possibility of tapping the US Fed.
“India’s current situation does not meet the Fed’s criteria for the establishment of bilateral swap lines,” the report said.
The sharp recovery in the rupee’s value also impacted the stock markets with the benchmark BSE Sensex flaring up 405 points, or 2.25 per cent.
The 30-share Sensex opened higher and stayed in positive territory until it settled at 18401.04, a rise of 404.89 points, or 2.25 per cent. The gain was the most since August 22, when the index climbed 407 points, or 2.27 per cent.
The broader Nifty index on the National Stock Exchange added 124.05 points, or 2.35 per cent, to 5409.05.
The SX40 index on the MCX-SX closed at 10849.51, up 219.46 points, or 2.06 per cent.
US President Barack Obama’s statement that he had not yet decided whether to attack Syria in the aftermath of the Assad regime allegedly using chemical weapons, also gave a reprieve to investors.
Oil and gas led all BSE sectoral indices higher, followed by metal, FMCG, capital goods and auto shares.
Sesa Goa was the biggest gainer on the index, climbing 13.54 per cent. The other major gainers were HDFC, Hindalco and Reliance Industries.
The three PSU oil companies gave up their initial gains at the close. Indian Oil rose 1.45 per cent to Rs 209.55, Bharat Petroleum climbed 0.45 per cent to Rs 270.05 and Hindustan Petroleum fell 0.31 per cent to Rs 163.55.