New Delhi, Likely intervention by the country’s central bank along with expectations of possible policy measures to curb currency fluctuations aided the Indian rupee to recover on Wednesday from its new record low of 72.91 to a US dollar.
The recovery was accelerated after reports stated that Prime Minister Narendra Modi may hold a meeting this weekend to take stock of the country’s economy.
On a closing basis, the Indian rupee recovered by 50 paise to 72.19 per US dollar against its previous close of 72.69 per greenback.
However, concerns over a rise in inflation rate, growing protectionism in global trade and an outflow of foreign funds from the country’s equity market had subdued the Indian currency during the morning trade hour at the Inter-Bank Foreign Exchange Market.
Consequently, the Indian rupee touched a fresh low of 72.91. Its previous record low was 72.74 made on Tuesday.
“Rupee recovered after comments from MoF (Ministry of Finance) officials about a possible meeting at PMO over the steps to tackle rupee depreciation. Dollar Rupee declined from 72.91 to 71.91 in a short span of time,” Anindya Banerjee, Deputy Vice President for Currency and Interest Rates with Kotak Securities, told IANS.
“Central bank may have intervened in market as well to sell US dollars. The near term volatility will be high, as interventions from RBI (Reserve Bank of India) and government is offset by weakness in EM (emerging market) currencies and rising oil prices. A range of 71.50-73.50 is expected.”
The apex bank is known to enter the markets via intermediaries to either sell or buy US dollars to keep the rupee in a stable orbit.
“Today, the rupee appreciated sharply as PM Modi is scheduled to review economic situation. Hence market expects that government and RBI might announce some measures to stabilise the rupee,” Rushabh Maru, Research Analyst at Anand Rathi Shares and Stock Brokers, told IANS.
“But if the government doesn’t announce measures then we may once see sharp depreciation in the rupee.”
According to Madhavi Arora, Economist, FX and Rates at Edelweiss Securities:
“INR’s effective reaction beyond the knee-jerk today will depend on the severity of measures adopted by the policymakers.”
“We continue to maintain the USD/INR range at 69-74 for remainder of FY19 but will closely watch out for the policy space.”
Apart from possible policy measures, any further outflow of foreign funds from the Indian equity and bond markets might have an adverse impact on the rupee.
Investment-wise, provisional data with exchanges showed that foreign institutional investors sold scrip worth Rs 1,086.39 crore and domestic institutional investors bought stocks worth Rs 541.44 crore.