Expectation of interest rate hike by the RBI and some hints of tapering from the Fed putting pressure on the rupee
After a brief respite, the rupee slipped below the 62 level against the dollar on Tuesday, falling 28 paise ahead of the RBI’s policy review and the two-day US Federal Reserve meeting.
The rupee also declined on renewed dollar demand from importers and banks amid bearish local equities. Its fall was restricted by foreign fund inflows and a weak dollar overseas.
At the interbank foreign exchange market, the rupee opened lower at 61.75 a dollar. It gradually moved to a low of 62.03 before settling at 62.01, a fall of 28 paise or 0.45 per cent. On Monday, it rose 39 paise.
“The gains posted by the rupee on Monday on the back of dollar selling by the RBI were wiped out in the initial trade. The expectation of interest rate hike by the RBI and some hints of tapering from the Fed are putting pressure on the rupee,” said Abhishek Goenka, CEO of India Forex Advisors.
The benchmark 30-share Sensex declined for the sixth straight session and closed 47.38 points lower amid increasing expectations of an interest rate hike by the RBI on Wednesday as it seeks to combat inflation.
Overseas investors bought shares worth a net Rs 159.55 crore on Monday, according to provisional data with the stock exchanges.
“Rupee ended week against dollar due to renewed demand for the US currency from banks and importers,” said Pramit Brahmbhatt, CEO of Alpari Financial Services (India). “The dollar index, which measures the US currency’s value against a basket of six major currencies, traded in a narrow range ahead of the Federal Open Market Committee meeting.”
Forward dollar premiums ended with minor changes. The benchmark six-month forward dollar premium payable in May closed at 245—247 paise from 245 to 247—1/2 paise and far—forward contracts maturing in November finished at 490 to 492—1/2 paise from 490—492 paise.
The RBI fixed the reference rate for the dollar at 61.9580 and for the euro at 85.3345.
The rupee fell to 101.06 against the pound from 100.74 on Monday and turned negative to end at 85.34 per euro from 85.11. It dropped to 60.26 per 100 Japanese yen from 59.93.