New Delhi: The rupee, Asia’s second best performer this year, ended three days of gains on speculation the central bank is selling the currency to protect exporters.
Slower inflation may be encouraging the Reserve Bank of India (RBI) to step up dollar purchases to stem rupee gains, said Rohan Lasrado, a trader at HDFC Bank Ltd in Mumbai. The government last week announced steps to cushion small exporters from a stronger currency, which rose 9.6% this year.
“It’s very difficult to gauge what levels they have in mind for the rupee, but their resolve to hold it steady for the moment is clear,” Lasrado said. “With the central bank mopping up the capital flows, there’s a fairly even interest on both the buy and the sell side to keep the rupee steady.”
The rupee fell 0.1% to 40.4025 against the dollar at the close of trading in Mumbai, from 40.365 on Tuesday.
The central bank, which releases data on its dollar purchases with a delay, this week said it bought $4.43 billion (about Rs18,000 crore at Wednesday’s rate) in May, the most in three months. Foreign-currency reserves have risen by about $6.6 billion in June and up to 6 July, suggesting further purchases.
The Union government last week handed out a relief package to exporters of leather goods, textiles and handicrafts, because a stronger rupee threatened to slow exports and cut jobs.
“Given the fact that more people are in the goods sector, the human aspects of exchange-rate management should not be lost sight of,” Rakesh Mohan, RBI deputy governor, had said in a speech delivered atBanque de France on 14 June.
RBI may have condoned the rupee appreciation this year on speculation it helped tame inflation that had accelerated to a two-year high in January. The rate dropped to a 13-and-a-half-month low of 4.03%in the week that ended 16 June.
RBI sales add currency to the banking system, fuelling inflation. It sold Rs5,000 crore of two-year bonds on Wednesday to mop up part of the surplus cash.