By Sam Nagarajan,Bloomberg
New Delhi: Rupee pared gains on speculation that state-owned banks, acting on behalf of RBI, sold the currency after it advanced to a nine-year high.
Three straight weeks of slowing inflation may have spurred the change in tact by the RBI, whose decline in dollar purchases in March suggested it was content to let the rupee strengthen to cap consumer prices. This year’s 9.1% surge in the currency is hurting exporters such as TCS and Infosys Technologies Ltd.
“The authorities will be more inclined to intervene as long as inflation is firmly under control,” said Parthasarathi Mukherjee, treasurer at UTI Bank in Mumbai. “At the moment, the rupee will keep trading in a range, unless capital flows exert pressure.”
The rupee traded little changed at 40.5% against the dollar in Mumbai, after rising as much as 0.2% to 40.535. The currency climbed to 40.52 on 22 May, the highest since 22 May 1998. It has failed to break 40.50 in the past two days, suggesting the central bank is slowing the pace of gains.
Rupee is the best-performer among 15 most-actively traded Asia-Pacific currencies this year. Exports, which account for about a 10th of the $854 billion economy, grew in the first quarter at less than half the pace of the same period last year.
The RBI “remains rather concerned about the longer-term impact of a strong rupee on export competitiveness,” Sanjeev Sanyal, a senior economist at Deutsche Bank in Singapore, wrote in a research report on 18 May.
Deutsche forecasts the rupee will weaken to 43 a dollar in 12 months.
Tata Consultancy, the country’s biggest software maker, said on 17 April, net profit in the quarter ended 31 March rose by 47% to Rs11.7 billion ($288 million), missing the median Rs12.1 billion estimated by analysts. Infosys said a stronger rupee cut operating margins by a percentage point in the same quarter.
The central bank slowed dollar purchases in March to $2.3 billion, from a record $11.9 billion in the prior month, the latest available figures from the Reserve Bank show.
Wholesale price inflation slowed to 5.44% in the week ended on 5 May, the least in five months, a government report showed last week.