Mumbai: The rupee staged a recovery on Wednesday after hitting a two-year low as the euro climbed on hopes of issuance of joint euro bonds, and as domestic equities reversed intraday losses tracking global peers.
Traders said likely corporate dollar inflows into foreign banks also supported the rupee’s bounce back.
The partially convertible rupee ended at 47.62/63 to a dollar, only marginally weaker from Tuesday’s close of 47.59/60, but much stronger than its intraday low of 48.02 -- a level last seen on 29 September 2009.
“Rupee had moved up (weakened) very fast and possibly on very thin volumes. So, when some dollar supply came in, the recovery was equally quick,” said a dealer with a large state-owned bank.
The sharp pull back in the rupee from the 48 mark gave rise to speculation the central bank may have sold dollars to stem the pace of the rupee’s fall, traders said.
“Given the sharp movement seen in the past few sessions in dollar-rupee, the market was expecting the central bank to step in and curb the volatility. And it looks like this is what happened after the rupee breached 48 mark in early trade,” said Pramod Patil, senior foreign exchange dealer at State Bank of Mauritius.
Reuters could not independently confirm any intervention by the central bank.
The economic affairs secretary at the ministry of finance, said the rupee’s depreciation is only a short-term disruption which does not require central bank intervention.
A bulletin released by the Reserve Bank of India on Tuesday showed it had not bought or sold dollars in the foreign exchange market for eight successive months including July.
The euro was at $1.3724, up from $1.3678 at the end of the rupee trade on Tuesday and from the intraday low of $1.3592 after the European Commission said it would soon present options for introduction of euro area bonds, a development investors saw as positive despite German opposition to the idea.
The index of the dollar against six major currencies was at 76.910 points from 77.094 previously.
Analysts, however, predict more weakness for the rupee given concerns over the impact of Europe’s debt crisis on the global economy and a slowdown in domestic growth.
“The bottom line is that we see very little support emerging for the INR in the near term...given the pace of the current momentum, a possible near-term upside of 48.50-48.70 cannot be ruled out,” said HDFC Bank in a research note.
The one-month onshore forward premium was at 17 points from 14 on Tuesday, the three-month was at 44.25 points from 34.50 and the one-year was at 105.25 points from 91.25.
One-month offshore non-deliverable forward contracts were quoted at 47.89, weaker than the onshore spot rate.
In the currency futures market , the most traded near-month dollar-rupee contracts on the National Stock Exchange, the MCX-SX and on the United Stock Exchange ended at 47.7500, 47.7575, and 47.7550 respectively. The total volume was $9.57 billion.