Mumbai: The rupee rose from a 14-month low as local exporters exchanged dollars for the currency.
The Indian currency snapped a two-day decline on speculation the central bank will stem losses and prevent a weaker currency from increasing import costs and adding to inflation. The rupee is the third worst performer in the past month among the 10 most-traded currencies in Asia excluding Japan’s yen.
The Reserve Bank of India did just this after market close on Wednesday.
“The dollar is not showing sustained strength which is why probably exporters are selling it each time it rises closer to a level like 43,” said Vikas Babu, a currency trader at state-owned Andhra Bank in Mumbai. “There is speculation the central bank will support the rupee to curb inflation and that view is also being reflected,” Babu added.
The rupee gained 0.35 to 42.865 a dollar at close in Mumbai, according to Bloomberg data. It may touch 42.85 this week, Babu said.
Asian central banks, seeking stronger currencies to combat inflation, may fail to halt the dollar’s rally because they are in a collision course with US treasury secretary Henry Paulson, says Morgan Stanley.
Paulson said this month that he would “never take intervention off the table” and US Federal Reserve chairman Ben S. Bernanke said he is “attentive” to the dollar’s slump.
US policymakers have set the stage for “outright intervention” to sever a vicious circle between a weak dollar and high oil prices, said Morgan Stanley’s London-based chief currency strategist Stephen Jen. The US campaign for a stronger currency, aimed at containing oil prices, “will work,” he said.
Central banks intervene in currency markets by arranging purchases or sales of foreign exchange. Indian foreign-currency reserves fell by $1.3 billion to $304.9 billion in the week that ended on 30 May, latest data show, indicating the central bank sold dollars.
The Reserve Bank of India doesn’t comment on daily rupee movements and foreign-exchange operations, spokeswoman Alpana Killawala said.
Wholesale prices rose 8.29% in the last week of May from a year earlier, according to the median estimate of 16 economists surveyed by Bloomberg News.