Mumbai: State-run Indian banks were seen selling dollars to help the rupee recover from a 17-month low hit in early trade on Wednesday in action traders said was likely to be intervention on behalf of the central bank.
India’s central bank uses state-run banks to intervene if it wants to slow a rupee decline or prevent it from rising too quickly, and private bank dealers said Wednesday’s dollar selling looked like intervention.
The chief dealer with a private bank said there had been heavy dollar buying by companies in the morning. “But later there was correction after some state-run banks sold dollars around 43.80 levels,” the chief dealer said.
The partially convertible rupee fell to 43.87 per dollar in early trade, its lowest since 20 March 2007.
By 12:30 p.m., it was at 43.7350/7550 per dollar, 0.3% weaker than Monday’s close of 43.59/60. Tuesday was a central bank holiday.
The chief dealer at another private bank said state banks sold dollars between 43.85 and 43.75 in what he also suspected was intervention on behalf of the central bank.
Two state-run bank traders said there had been dollar selling by state banks, although they said it was not heavy, and some of the rupee’s recovery was down to dollar sales by exporters.
The rupee has fallen 9.9% against the dollar since the start of the year as foreign investors have pulled funds out of the stock market.
Dealers said the prospect of state bank action meant the rupee was unlikely to weaken back past 43.80 this session, and further gains in the stock market could help it towards 43.60 per dollar.
The main share index was up 0.5% on Wednesday, on track to snap a five-day slide.
Unions representing some bank employees were on strike on Wednesday, but traders said this was not affecting volumes.