The rupee extended last week’s rally against the US dollar on Monday and touched a new high of 39.76/77 even as the government asked companies not to expect any intervention and remain export-competitive by increasing efficiency and cutting costs. A buoyant equity market–the Sensex scaled a new peak of 16,846 points–renewed the market sentiment on the surging rupee that was aided by dollar sales from financial institutions and exporters.
?I know the industry will be pained, but it needs to look for increasing efficiency and cost effectiveness,? Union commerce and industry minister, Kamal Nath said in New York.
Opening the day with a gap at 39.83/84 compared to Friday’s close of 39.90/91, the rupee appreciated to the day?s high of 39.76/77, which was also the Mumbai market’s closing level at 5.00 pm. There was massive intervention by the Reserve Bank of India (RBI). Government banks like Bank of Baroda, Bank of India and State Bank of India were buying dollars first at 39.82 and later at 39.77.
The buying, as the market interpreted, was on behalf of the RBI. The market estimated the day?s dollar-buying by government banks between $500 and $600 million.
On the impact of appreciating rupee on the infotech industry, Nath said IT companies have been enjoying tax concessions for too long, which had led to a disconnect between this sector and rural India.
?China calibrates exchange rates, but we’ve left it to be market-determined. I really don’t think government should be intervening. We did away with (this practice) as part of reforms,” Nath said.
“The market now sees some support at 39.50 on Tuesday and, if the rupee pierces this level, another 30 paise appreciation is expected,?? said a dealer at a foreign bank.
The domestic currency has risen nearly 11% against the dollar in 2007 and about 14% in the past one year. The appreciating rupee, which is at a nine-year peak, has hurt exporters, particularly software companies, which derive more than half of their revenue from the US.