The rupee bounced back after hitting an over three-month low intraday as public sector banks were seen selling dollars, possibly at the behest of the Reserve Bank of India.
The currency ended at 62.86 against the dollar on Tuesday, recovering 0.10% from the intraday low of 63.16. Dealers said PSBs were seen selling dollars at 63.10 levels to stem the rupee’s depreciation.
The RBI has been a net buyer of dollars so far, but has intermittently sold dollars to curb volatility of the rupee. “The movement of the currency seemed to suggest that there has been some intervention,” said a currency dealer with a public sector bank.
Between April 2014 and February 2015, the central bank had bought a massive $82 billion from the foreign exchange market through both spot and forward transactions. In fact, given this dollar-buying by the RBI, market participants believe the rupee would depreciate in 2015.
RBI officials, however, have reiterated time and again the central bank transacts on both sides of the market and does not target a level of the currency.
On Tuesday, rupee had weakened sharply in the early trade as a weak trade deficit number stoked fears over the country’s external sector. Data from the government showed the country’s trade deficit widened to $11.79 billion in March from $6.85 billion in February due to slowing exports and a jump in gold imports.
Further, an expected immediate outflow due to Daiichi Sankyo stake sale in Sun Pharma spurred dollar purchases by banks. “Firstly, the trade deficit numbers more than expected. Second is the dollar strength overseas and also the Daiichi stake sale,” said Ashutosh Raina, head of forex trading at HDFC Bank.
Meanwhile, the government bonds rose, with the yield on the 8.4% July 2024 notes falling 2 bps to 7.77%, according to prices from the central bank’s trading system.