RBI steps in to halt rupee fall
Mumbai: The Reserve Bank of India (RBI) on Wednesday came to the rescue of the rupee, which has been under pressure because of various reasons that included uncertainty in Karnataka.
Heavy intervention by the central bank in the forex markets saw the rupee rebounding from 16-month lows with the currency settling at 67.80 against the dollar - a gain of 27 paise over the last close.
The higher close came on the back of dollar sales by the central bank for the second consecutive day, which stemmed the domestic unit's fall amid the dollar's gains in the global markets.
In the forex markets on Wednesday, the rupee opened lower at 68.14 and slipped further to a fresh multi-month low of 68.15 in early trade. It was then that the currency pulled back as banks sold dollars on the instruction of the RBI. The unit later hit a fresh intra-day high of 67.75 in late afternoon deals before closing at 67.80, showing a gain of 27 paise, or 0.40 per cent.
The rupee's gain was partially helped by some softness in crude prices despite ongoing output cuts by producer cartel Opec and looming US sanctions against major exporter Iran. Brent crude, an international benchmark, was trading at $77.73 a barrel in early Asian trade.
On Tuesday, the rupee had plunged to a 16-month low of 68.07 because of various factors that included the polls in Karnataka where the BJP failed to secure a majority. Amid rising crude prices, foreign fund outflows in the recent past have also exerted pressure on the rupee.
Experts caution the domestic currency could continue to be under pressure.
"The current bout of rupee weakness does not just seem like a passing phase. India is vulnerable to rising crude prices. Our exports have not picked up in line with the strength in the global economy. The recent trade deficit on a seasonally adjusted basis was higher than $15 billion.
"At this rate, the current account deficit (CAD) for 2018-19 is likely to be around $80-90 billion. While this is significantly higher than $20-30 billion seen in recent years, there are concerns over whether the capital inflows would continue that could fund this CAD. FDI inflows too seem to be waning,'' Abhishek Goenka, founder & CEO of IFA Global, said in a recent note. Goenka expects the rupee to touch the 70-mark against the greenback in early 2019.
Data released by the RBI recently showed forex reserves falling by $1.42 billion, indicating the central bank's intervention to support the rupee.
As on May 4, the central bank's weekly statistical supplement showed reserves declining to $418.94 billion from $420.36 billion for the week ended April 27.