Bucking the trend in the global currency market, the rupee closed at a more-than-two-month high on Monday even as the Greek debt crisis worsened. Forex dealers believe that even as the turmoil deepens, the rupee would hold strong in the coming weeks.
“The rupee hasn’t broken 64.50/$ yet. It would be in the same range as it is now,” said Jamal Mecklai, CEO, Mecklai Financial Services.
The currency ended at 63.40/$, an over-two-month high, even as the Greek vote against austerity dragged down most currencies, such as the Indonesian rupiah, South African rand, Brazilian real, South Korean won and the Malaysian ringgit by 1%. The euro has tumbled 2% against the dollar in a week’s time.
“Even with negligible direct exposure to Greece, contagion risks in the euro zone will imply pressure on rupee and higher volatility, with risk on capital inflows. We expect RBI to use both the forward and the spot market to manage the pressure on rupee,” said Kotak Mahindra Bank in a note.
So far in 2015, the rupee has lost a little over half a percent in value amid the unfolding Greece debacle, which has taken other currencies down by as much as 8%. It trails only the Russian rouble and the partially controlled Chinese renminbi in performance.
Forex dealers believe that the RBI would continue to build on reserves and the rupee’s depreciation would be largely due to the central bank’s dollar purchases rather than global events.
“The RBI is holding the rupee very tight. (RBI governor) Rajan believes that reserves have to be built and the volatility has to be prevented at any cost,” said Mecklai.
A cosy level of foreign exchange reserves (at an all-time high of $355 billion) and assurances that the Reserve Bank of India would contain any volatility has helped the currency maintain its value.
The currency derives its strength particularly from the RBI’s regular interventions in the forex market and also from emerging data that reflect the improvement in the balance of payments situation and growth of the economy.
The country’s BoP moved into surplus with the current account deficit narrowing to 1.3% in 2014-15. The central bank has time and again assured market participants that it would intervene to contain volatility in the currency.
Indeed, the RBI has walked the talk and been a net buyer of the dollars for eight straight months. As of April, RBI bought a cumulative $44 billion from the spot dollar/rupee market since January. According to currency dealers, RBI has been buying dollars in May and June as well.