Market participants and bankers are expecting more sanity in the forex market as they feel that actual impact of the last week's unconventional measures by the Central bank will be felt more in the coming weeks. The optimism stems from the reduced volatility in the market since the RBI intervention, though the rupee ended the week beginning Tuesday with a loss of 4 paise at 59.35 to the greenback. "The worst is over for the rupee as volatility has backed off and clear stability is seen in the market.
The rupee has not gone beyond 60 to the dollar (since last Tuesday's RBI measures)," treasury head at FirstRand Bank India, Harihar Krishnamoorthy, told PTI. However, Navin Raghuvanshi, vice president, treasury, at Development Credit Bank, opined that "the recent measures are just the beginning and some more measures are required to stabilises the rupee". In a drastic step, RBI last Monday raised short-term borrowing rates, capped the overall borrowing limit from the repo window for banks and announced sale of bonds via the open market operations to stem the rupee rout, which on July 8 had hit a life-time low of 61.21 to the greenback.
The rupee moved in the 59.05-59.88 band post-RBI measures. The next day the government chipped in by easing FDI norms in 11 sectors, which also helped rupee. "The RBI will continue to support the rupee as they have been doing and a 58.50 level seems to be a good support for the unit," said Raghuvanshi. Forex market participants also expect more stability in the rupee once exporters start selling dollars. "Exporters will come and start selling the dollar at Rs 58.80, and then at Rs 58.30 levels," said the Mumbai-based brokerage firm Forexserve, chief executive Satyajit Kanjilal.
Analysts feel that RBI and government would require to take more proactive steps to support the currency which has lost over 9 per cent since April. "This is just a beginning. Some more measures are required," said Raghuvanshi. Barclays Capital in a note said it will be appropriate for the RBI and the government to follow up with more tangible measures to curb rupee weakness. "The absence of the same potentially carries the risk of turning the current RBI initiatives counter-productive," it said. According to Barclays', a forex-denominated offshore bond issuance remains the most potent near-term policy option.