Mumbai: The rupee jumped more than 2% on Friday and was on track to post its biggest single-day rise in more than two years after the central bank took steps to stem the currency’s plunge to a series of record lows.
At 10:47 am, the rupee bounced to 52.67/70 per dollar from 53.64/65 at close on Thursday.
After the market closed on Thursday, the Reserve Bank of India reduced trading limits for banks in the foreign exchange market, making it difficult for market players to keep speculative positions open for a long time.
While the measures should help reduce speculative volatility in the FX market, Morgan Stanley strategists said as long as global funding strains remain, the rupee is likely to stay under pressure.
Shares of some companies such as Bharti Airtel, the country’s top mobile phone carrier, gained as traders said the Reserve Bank of India action will help reduce losses on its foreign debt exposure.
Before the central bank waded into the currency market on Thursday, the rupee notched up a series of successive record lows falling to 54.30 per dollar on Thursday, a nearly 20% decline from July highs.
If Friday’s 2% rise is sustained, it will be the currency’s biggest single-day gain since May 2009, according to Thomson Reuters data.
But analysts poured cold water on the long-term effectiveness of these moves as the attractiveness of Indian assets have dropped sharply in recent months in the backdrop of a worsening domestic economic growth outlook.
Down more than 20% so far this year, Indian stocks are among the worst performing markets in Asia.
Data showed on Monday that India’s industrial output slumped more than 5% in October from a year earlier, far worse than expected and the first drop in more than two years, with capital goods output down 25.5%.
Kotak Mahindra Bank strategists said fundamentals of a weaker domestic macro conditions and overall risk aversion in the global financial markets are expected to be the main drivers for the rupee.
For now though, the rupee seems to have found a temporary footing. In the offshore non-deliverable forwards market, one-month contracts were being quoted at a slight discount of 52.70 per dollar.
The Reserve Bank of India’s policy review later in the day will also provide some direction to the foreign exchange market.
While markets do not expect an interest rate cut, analysts expect the central bank to signal a stronger resolve to intervene to hold up the beleaguered currency.
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