Rupee Falls To 2 Month Low, RBI Sells Dollars To Arrest Fall
The RBI is largely expected to hike the repo rate tomorrow by 25 basis point" Kunal Sodhani, head treasury Shinhan Bank
MUMBAI: The Indian rupee declined to its weakest level in over two months on Tuesday hit by outflows by Foreign Institutional Investor (FII) from domestic equities, elevated crude oil prices, strong dollar demand from importers and high global bond yields with pre-monetary policy
positioning adding to the pressure.
At the interbank foreign exchange market, the rupee opened at 95.32 per dollar and fell to a multi month low of 96.45, a fall of Rs 1.13 or nearly 1.2 per cent from its opening level. Market participants
said that the RBI through state run banks sold dollars around 96.30–96.40 levels to smooth the decline. The rupee finally closed the day at 96.42 per dollar, down 13 paise compared to its
previous close of 96.29 per dollar.
“The RBI is largely expected to hike the repo rate tomorrow by 25 basis points which would be positive for the rupee but by itself may not be sufficient to reverse the trend (of rupee falling) as the move is largely priced in. A hawkish stance and guidance together with continued RBI intervention and liquidity management would have a stronger stabilising impact,” said Kunal Sodhani, head treasury Shinhan Bank.
Says Anil Bhansali, head treasury at Finrex Trading Advisors, “The magnitude of today's move suggests that dollar demand was unusually strong, while importer hedging and stop-loss demand may have amplified the move once 96 level was breached. With the pair now approaching the
96.96 record low touched in May, the 96.50–96.70 becomes an important immediate resistance area, while sustained RBI intervention and any improvement in oil or global risk sentiment could provide some near-term relief.”
“The range for the rupee is expected between 96 to 96.75 tomorrow,” added Bhansali.
Meanwhile, the Dollar Index which tracks the value of a dollar against six major currencies remained firm at 102 after touching an intrada high of 102.30. Brent crude retreated noticeably in the morning after an early rise to an intraday high of $100.99/bbl, with the price now around $97.93, epresenting a fall of more than $3 from the day's peak.