Home / Economy / Rupee closes marginally higher as RBI shields currency

The Reserve Bank of India (RBI) likely sold dollars via state-run banks today as the rupee gave up most of its intraday gains and threatened to fall to new record lows, traders confirmed. The rupee settled 13 paise higher at 81.80 against US dollar, ahead of the RBI's monetary policy meeting on Friday.

The intervention by the central bank was confirmed to Reuters by two bankers and a brokerage company.

At the interbank forex market, the local unit opened at 81.60 against the greenback. It witnessed an intra-day high of 81.58 and a low of 81.94 during the session.

It finally ended at 81.80, up 13 paise from its previous close.

The currency hit a record low of 81.95 on Wednesday and had declined nearly 3% over the past six sessions despite the RBI's support.

'Indian rupee strengthened in the last hour of trade' 

"In the last hour of trade, the Indian rupee strengthened along with the Chinese Yuan which appreciated after a report of China state bank may stock up for Yuan intervention. However, the month-end rebalancing, foreign fund outflows and dollar demand from the importers limited the gains in the rupee," said Dilip Parmar, Research Analyst, HDFC Securities.

Traders remained cautious ahead of the RBI's monetary policy decision.

Traders have also said that the rupee was not able to sustain the gains on dollar demand from foreign banks and from oil refiners. The rebound on the dollar index and Treasury yields marching higher after yesterday's pullback further pressured the rupee.

Foreign Institutional Investors (FIIs) were net sellers in the capital markets as they offloaded shares worth 2,772.49 crore on Wednesday, as per the exchange data.

Governor Shaktikanta Das may opt to dial up his hawkish rhetoric tomorrow from his tone at the August meeting when he pledged to do “whatever it takes" to cool inflation that has stayed above 6% this year. 

Since then, India’s price gains quickened anew and the currency slump deepened as the US Federal Reserve raised rates by 75 basis points for a third consecutive time and amplified a hawkish signal while warning of a painful slowdown needed to quell inflation.

Moreover, expectations of a 50-basis point hike have grown due to the pressure on rupee from large US rate hikes.

“The biggest point of worry currently is the significant depreciation in the currency," said Upasna Bhardwaj, chief economist of Kotak Mahindra Bank Ltd. Deteriorating reserves curtail RBI’s ability to intervene so “higher interest rates will have to be maintained with hawkish tone in the policy to support the rupee."

Dhiraj Nim, an economist and strategist with ANZ Research, highlighted the risks from high inflation. "Concerns of imported inflation from commodity prices remain contained even with a weaker rupee," he said in a report.

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