BackRupee ends losing streak on easing current account deficit worries
The partially convertible rupee closes at 56.44/45 per dollar, 0.6% higher against its previous close
Premium(Priyanka Parashar/Mint)
Mumbai: The Indian rupee rose on Tuesday after five days of falls, as further restrictions on gold imports by the central bank helped ease some worries over the country’s record current account deficit.
India is likely to raise the cap on foreign investment in sovereign debt by $5 billion soon, two finance ministry officials said, a move that may support the sliding rupee and help fund a high current account gap.
The Reserve Bank of India (RBI) extended the restrictions on the import of gold on consignment basis by banks to all nominated agencies and trading houses.
The rupee lost 4.8% of its value in May and was the worst performing Asian currency last month. On the year, the unit is down 2.6%.
As the global market tide sweeps the rupee close to an all-time low, raising current account financing and inflation risks, policymakers for now are more likely to use small-scale intervention and administrative measures to defend the currency.
“The gold restrictions and foreign institutional investor (FII) limit hike have cheered market participants. There are also some flows expected in June, so we may see some positive for the rupee," said Uday Bhatt, a senior foreign exchange dealer with UCO Bank.
Flows from Unilever Plc, which plans to pay up to $5.4 billion to raise its stake in its Indian subsidiary Hindustan Unilever Ltd, are expected in June. The open offer opens on 21 June and closes on 4 July.
The partially convertible rupee closed at 56.44/45 per dollar compared with 56.76/77 on Monday, after moving in a wide range of 56.39 to 56.7350 during the day.
“We can’t rule out the risk of USD/INR creating new high in the near term as expectation for US QE (quantitative easing) tapering off is likely to remain strong before the September US FOMC meeting," said Ju Wang, a senior foreign exchange strategist at HSBC in Hong Kong.
Fears of a gradual withdrawal of the US Federal Reserve stimulus were the key reason for a global dollar rally in May, which pushed down almost all Asian currencies.
In the offshore non-deliverable forwards, the one-month contract was at 56.75 while the three-month was at 57.32.
In the currency futures market, the most-traded near-month dollar/rupee contracts on the National Stock Exchange, the MCX-SX and the United Stock Exchange all closed at around 56.67 with a total traded volume of $5.3 billion. Reuters
Subhadip Sircar contributed to this story.
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