An inflow of $4.2 billion into debt and equity over the last one month notwithstanding, the rupee has shed 0.45%, partly due to a general dollar rise against most currencies and the RBI’s intermittent dollar purchases.
The currency closed at 61.75/$ on Tuesday, showing a fall of 0.02%, the lowest since October 16. Dealers said that demand for the dollar from importers weighed on the currency intraday. Despite the recent fall, the currency is still best performing currency among emerging markets. It has weakened just 0.20% so far in 2014 compared with the fall of more than 5% of other units such as the Brazilian Real and South African Rand and the massive 30% fall in the Russian Rouble.
Most Asian currencies have fallen by at least 2%.
“The fact that the rupee has not depreciated in a big way reflects the flows we have got. And also, RBI has been buying to shore up reserves,” said Ashish Parthasarthy, head of treasury at HDFC Bank.
Dealers said that the fall is also due to the dollar purchases by public sector banks at RBI behest. “This fall is partly engineered by the central bank because they do not want the rupee to rise sharply,” said a treasury official at a US-based bank.
The RBI statement on its forex policy has been that the it intervenes only to curb volatility and not to protect any level of the rupee. However, many traders said an offshoot of consistent intervention is that the currency becomes sticky at a certain level. RBI data show the central bank has bought $1.4 billion in September while total dollar inflows from foreign portfolio investors had been $3.56 billion in the month.
“RBI is trying to ensure an orderly movement of the rupee so that it alligns with the trade basket of currencies,” said Hitendra Dave, head of global markets at HSBC.
During January-September period, RBI had soaked up 66% of the $33.48 billion that foreign portfolio investors pumped in the Indian financial markets. This intervention has kept the rupee in 59.00-61.00/$ band.
Foreign investors have poured in $23.39 billion into Indian bonds and another $15.26 billion into equities since January.