Currency ended at 53.63, lowest for the week
Notwithstanding the Reserve Bank of India’s latest set of measures to give a fillip to dollar flows, the Indian rupee weakened yet again on Friday as foreign investors continued to avoid buying Indian shares and bonds. The rupee, which had gained over 20 paise on Thursday, ended at 53.63/$1, the lowest for the week. It has depreciated over 1.0% in just two weeks and is down 0.60% since January.
Foreign institutional investors (FIIs) bought just $64.19 million of shares and sold $41.14 million of debt on Friday.
Currency dealers said that persistent dollar buying by foreign banks and oil companies dragged the rupee down. ?Foreign banks were on the buy side throughout the day. The trend in the rupee is still downwards despite the measures from the RBI,? said a currency dealer at a public sector bank.
RBI’s announcement that exporters must convert 50% of their dollar holdings to rupee balances had propped up the rupee on Thursday. However, with a large current account deficit (CAD) weighing, the Indian currency resumed its fall.
Most market participants expect further downside in the currency until the twin deficit, current account and fiscal deficit, are brought under control.
In an event in Bangalore, RBI deputy governor Subir Gokarn said the central bank aims to give as much stability as possible to the exchange rate and its recent measures were a step in that direction.
Gokarn also said that the capital flows are more volatile in the current financial year than they were in 2003-2008 period. The deputy governor highlighted the risks from a large current account deficit as well.