After facing a topsy turvy fortune for six consecutive days, the rupee recovered by 135 paise to close at 63.20 mainly on account of suspected heavy dollar selling by the Reserve Bank of India (RBI).
It was rupee’s second-biggest rise in a decade in absolute terms.
Experts on their part were divided in their opinion with a section saying that rupee’s positive growth was due to major dollar buying by the RBI towards the end of the session, while another section gave the credit to a Barclays’ report.
According to Barclays, foreign brokerage houses have reduced India’s current India deficit (CAD) to $68 billion from $80 billion in FY13. The report has also predicted that rupee would recover to the level of 61 in the six to 12 months.
Comments from the Government and the RBI had come on Thursday amid the rupee sliding to an all-time intra-day low of 65.56.
Chidambaram had said the rupee is undervalued and has overshot appropriate levels while asserting there is no need for excessive and unwarranted pessimism. The Reserve Bank said it has adequate foreign exchange reserves to deal with the declining rupee.
After opening higher at 64.30 in the foreign exchange market, the rupee immediately dropped to a low of 64.75 on initial weakness in equities. It rebounded and shot up at the fag end to settle at 63.20, a rise of 135 paise or 2.09 per cent. Previously, it had flared up by 152 paise, or 3.08 per cent, on May 18, 2009.
The dollar index was up by 0.10 per cent against its major rivals ahead of the Federal Reserve’s annual gathering.
Forward dollar premiums tumbled on consistent receipts by exporters. The benchmark six-month forward dollar premium payable in January dipped to 229-234 paise from Thursday’s close of 236-240 paise. Far-forward contracts maturing in July dropped to 434-439 paise from 445-450 paise.
The rupee shot up further to 98.47 against the pound from 100.50 and surged against the Japanese yen to 63.80 per 100 yen from 65.41. It rebounded to 84.40 against the euro from 85.94.
This year so far the domestic curency has posted a loss of almost 20 per cent. This way it is now the worst performing currency among major Asian currencies.
In spite of the number of measures announced by the RBI and the Government, rupee continued to fall heavily against the US dollar.
During the first four trading sessions of the week, the rupee was continuously sinking with the local stock markets witnessing heavy sell-off. The Reserve Bank of India announced a slew of measures to ease liquidity, including Rs8,000 crore bond buyback, to ensure adequate credit flow to productive sectors of the economy. But it has not helped the rupee to recover, said a market expert.
On the global front, the US dollar index was seen trading slightly weaker ahead of the release of FOMC minutes. later, it started showing recovery as the minutes gave a signal that the Fed is most likely to taper QE this year. The slow but steady recovery in the US is making the greenback stronger against other currencies, as investors pull out money from other markets to reinvest in the US. Indications that the US may withdraw or taper the ongoing bond buying could potentially tighten liquidity in global markets and put the brakes on funds for developing economies.
“Overall the USDINR pair is in a bullish trend. However the indicators are trading in the overbought region, thereby signaling a possible correction in the pair. If it sustains below 64.00 levels on a consistent note, then we might see a correction towards 62.80-62.60 levels,” opined the expert.
However, gold prices fell by Rs200-330 in major metros except Chennai.
In bond markets, the 7.16 per cent Government security maturing in 2023 fell to Rs92.70 from Rs92.88 on Thursday, while its yield inched up to 8.26 per cent from 8.23 per cent.