Indian rupee eases to 67 levels against dollar after RBI moves on oil imports

Written by Agencies | Mumbai | Updated: Aug 29 2013, 18:31pm hrs
Indian rupeeThe Indian rupee was routed on Wednesday, hitting an historic low of 68.825 against the dollar, the worst single-day fall since the currency was partially freed in 1993.
The Indian rupee trimmed its initial gains against the US dollar, but was still quoted higher by 116 paise to 67.64 per dollar in the afternoon trade at the Interbank Foreign Exchange market on fresh selling of the US currency by exporters and banks amid fresh measures announced by the Reserve Bank of India (RBI) to check free-fall of the currency.

The battered rupee recovered after the Reserve Bank of India (RBI) yesterday said it has started a facility to meet the daily dollar requirement of the country's three state-run refiners.

The rupee resumed higher at 66.90 per dollar as against the previous closing level of 68.80 per dollar at the Interbank Foeign Exchange (Foerx) Market and firmed up further to a high of 66.85 per dollar.

However, the partially convertible rupee trimmed its initial gains and was quoted at 67.64 per dollar at 12.30 am, up 116 paise or 1.69 per cent stronger than its close of 68.80/81 on Wednesday, when it hit a record low of 68.85. The rupee rose as high as 66.85 per dollar shortly after the opening.

The benchmark 10-year bond yield also gained tracking the rupee, with the yield falling as much as 21 basis points to 8.75 per cent.

Fiscal brinkmanship: Open-door policy to be blamed for rupee woes

The rupee closed at 68.80/81 after dropping 3.7 per cent on the day to hit a record low of 68.85, in its biggest single-day percentage fall since October 1995.

Besides, the dollar selling by exporters and banks, fresh measures announced by the RBI to curb the rupee's slide and fall in crude prices in the global market, helped domestic currency to rebound, forex dealers said.

They said a higher opening in the equity market also supported the recovery in the rupee, they said.

RBI has decided to open a special window to help the three state-owned oil marketing companies, which need about USD 8.5 billion every month, to meet their daily foreign exchange requirement in a bid to check the rupee's free fall.

Editorial: 5 measures the FM could take to make things better

The Reserve Bank of India announced late on Wednesday a special window "with immediate effect" to sell dollars through a designated bank to Indian Oil Corp Ltd, Hindustan Petroleum Corp, and Bharat Petroleum Corp "until further notice".

USD/INR 1-month NDF closed at 67.80-90 on Wednesday with volumes remaining high.

Analysts said the RBI measures alone would not lead to a sustained rupee recovery unless the government can pass measures that can convince markets of its willingness to tackle India's fiscal and current account deficits and slowing growth.

"The measure is unlikely to arrest the decline in the INR with the authorities increasingly trying to find new means to stem the rout in the currency," Mitul Kotecha, head of global markets research for Asia at Credit Agricole in Hong Kong, said in an email to clients.

Thursday's rupee bounce also boosted shares and bonds, underscoring how movements in domestic markets are increasingly being driven by the beleaguered currency.

The improved sentiment was also helped as Asian shares recovered while emerging market currencies stabilised as fears abated that U.S.-led forces would soon launch a military strike against Syria.

The defence of the rupee has largely rested so far on the RBI's shoulders. Yet its plan to drain cash from markets and curb speculative trading is becoming increasingly controversial as bond yields have surged, raising borrowing costs in an economy already growing at its slowest pace in a decade.

At the same time, the government has struggled to inspire confidence despite a slew of measures to raise dollars from abroad and curb imports of gold and oil that have most contributed to a record current account deficit.