The rupee on Wednesday rebounded from a new intra-day low of 72.91 before ending the session at 72.1850 against the dollar, up 51 paise over Tuesday's close.
The rupee on Wednesday rebounded from a new intra-day low of 72.91 before ending the session at 72.1850 against the dollar, up 51 paise over Tuesday’s close, amid reports that the government would meet on Saturday to review the state of the economy. The rupee has now lost 11.5% since January. “The government and RBI will do everything to ensure that rupee does not slide to unreasonable levels. Today’s correction seems to reflect that realisation,” economic affairs secretary Subhash Chandra Garg tweeted. “There was no fundamental rationale for the rupee to depreciate to levels seen till yesterday,” Garg pointed out.
“It reflected overreaction of market operators,” he added. The premium on three-month forward contracts jumped by around nine basis points (bps) on Wednesday to around 4.7%.Tuesday’s close stood at 4.6128% . Around a month ago, on August 13, the premium on the forward contract was at 4.3259%. The rupee opened weaker on Wednesday owing to elevated crude oil prices. However, reports of a lower trade deficit for August at $17.40 billion as against $18.02 billion in July resulted in the currency regaining some lost value.
The RBI, earlier this week in its releases, stated that it sold $6.18 billion in the forex market in June as against $1.87 billion in July and purchased $4.02 billion in June as opposed to $4.13 billion in July. In the offshore markets, the three-month non-deliverable forwards (NDF) cooled off by 53 paisa to 73.15/$ on Wednesday.
On Tuesday, the value in the NDF was 73.68/$. Around a month ago, the NDF was trading at 69.83/$. The linkage between the offshore and onshore dollar/rupee rates is stronger during episodes of depreciation, experts added. Ananth Narayan, professor of finance at SPJIMR, believes that in a way, Wednesday’s rebound in the rupee indicates that between them, the RBI and the government still have ample resources to manage short-term volatility. “But in the time that the authorities buy for us, we have to address our external balance.
Our current account deficit (CAD) is ominously large, and we are borrowing foreign currency to pay for our oil, coal, electronics and gold bills,” Narayan observed.