Rupee steadies on RBI’s proactive watch

Rupee steadies on RBI’s proactive watch

New Delhi: The rupee ended little changed on Thursday on speculation that the Reserve Bank of India (RBI) will be reluctant to allow further gains that may hurt export earnings.

The currency traded near the strongest in two weeks as the Sensex advanced for the third day this week.

The rupee’s “sharp appreciation" in the past few months “has put pressure" on exporters, finance minister P. Chidambaram had said in Parliament last week.

“We are seeing some good support for the dollar coming from the central bank around the 39.40 level," said L.V. Prasad, chief currency trader at IndusInd Bank Ltd in Mumbai. “Further gains in the rupee will really depend on them."

The rupee closed at 39.485 against the dollar in Mumbai, versus 39.495 on Wednesday. It has risen more than 12% this year, making it the best performer in Asia after the Philippine peso.

Foreign exchange reserves have risen in the 12 weeks through 23 November, suggesting RBI bought dollars to stem rupee’s appreciation. The currency touched 39.185 on 7 November, the strongest in almost a decade.

The country’s trade deficit widened to a record $7.5 billion (Rs29,625 crore now) in October, the commerce ministry said in a report on 3 December.

A stronger rupee typically encourages imports, while making goods and services shipped overseas more expensive to customers abroad, helping widen the trade gap.

“The sharp appreciation of the rupee over the last several months has put pressure on the export sectors," particularly leather, textiles, handicrafts and marine products, Chidambaram had said on 29 November. “The government is sensitive to the pressures on these sectors."

The rupee is headed forthe biggest annual gain since at least 1974 as global funds more than doubled theirstock purchases from 2006, surpassing the previous year’s record. BLOOMBERG