Mumbai: The rupee rose against the dollar for the first time in three days on Thursday, following dollar sales by exporters and a revival in investor sentiment in the local stock market after oil marketing companies decided to hike petrol prices from Wednesday midnight.
Dollar sales by the Reserve Bank of India (RBI) to support the rupee also helped in curbing demand for the greenback amid expectations that the rupee had found a key technical support below 56 per dollar.
The rupee rose 0.63% to close at 55.65 on Thursday, after falling three days in a row. Earlier in the day, it had touched an all-time low of Rs.56.38 per dollar. The rupee has fallen 2.1% in the last one week.
Bankers said the Indian currency may have found its bottom for now. “Exporters sold a lot of dollars today (Thursday) because tomorrow is the last day by which they have to comply with RBI regulations to sell 50% of their overseas proceeds. Dollar sales by RBI, a positive stock market and comments by RBI governor D. Subbarao helped,” said Agam Gupta, head trading, South Asia, Standard Chartered Plc.
Early this month, RBI had ordered exporters to convert half their foreign exchange earnings kept in bank accounts into rupees to prop up what is the worst-performing currency in Asia. The last date to comply with that order is 25 May.
Gupta said he expects around $1 billion sales by exporters between Thursday and Friday as they rush to comply with RBI order. A 1.72% rise in the 30-share benchmark Sensex also improved the rupee sentiment. The rise in local stocks was the steepest since 30 March.
Moreover, RBI governor D Subbarao’s comments on rupee added to expectation that the central bank could announce more measures to support the Indian currency. Subbarao said RBI is not ruling out the sale of dollars to oil companies directly, raising hope that the demand for dollars from oil companies—which forms the biggest component in the currency market—will be settled off-market by RBI, easing the pressure on the rupee.
“That’s (selling dollars directly to oil companies) been an issue on the table. I am not ruling it out. I am also not saying that we are going to do it right know. It’s an open issue. We have done it in the past,” Subbarao said.
“Some structural changes are necessary for improvement in the current account. Meanwhile, RBI is monitoring the situation and we will do whatever is necessary, consistent with our policy,” he said at a press conference after a meeting of the central bank board in Mussoorie, Uttarakhand.
J. Moses Harding, head of asset liability committee and economic and market research at IndusInd Bank Ltd, said the rupee’s fall below 56 per dollar “looked excessive”, forcing exporters to step in and book profits at these levels.
“Exporters waited for this long but there is limit to how much they can wait. They had to come in at these levels because the rupee has moved from 44 to 56 in just three months. Also, not to forget that it’s also much costlier for importers to buy dollars at these prices,” Harding said.
Harding said he does not expect the rupee to fall below 56.50 per dollar in the next two weeks.
Gupta from Standard Chartered agreed. “RBI has shown some resolve to protect the rupee. Weakness beyond 56.50 is unlikely. Also, the fact that global crude oil prices are falling, will also support sentiment,” Gupta said.
Brent crude oil for July delivery dropped 1% to $106.44 per barrel in the last one week.
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