Rupee 1-week forwards end lower; State bank dollar selling caps losses

Reuters: Rupee one-week forwards ended lower on Wednesday on importer dollar demand amid low liquidity for the US currency, but dollar selling by a State-run bank capped losses, dealers said.

A decision by Moody’s to revise down the country’s sovereign rating outlook also weighed on the currency, they said.

The rupee is also under pressure due to lack of exporter conversions, while moral suasion by the central bank has prevented the spot currency from trading, dealers said.

One-week dollar/rupee forwards, which have been acting as a proxy for the spot rupee in the absence of trade in three-day forwards, ended at 147.40/70 per dollar on Wednesday, weaker than Tuesday’s close of 147.30/70.

“The pressure is there as there are not much of (dollar) conversions and very low (dollar) liquidity. People are not selling dollars with rising uncertainty,” said a currency dealer, asking not to be named.

“A State bank sold dollars from 148.10 to 147.45 to ease the pressure on the rupee. It’s not sure whether the State bank sold their own positions or on behalf of the Central Bank.”

Dealers said the market was perplexed by the central bank’s intervention in both spot rupee and forwards.

Central Bank officials were not available for comment.

Moody’s Investors Service on Monday changed the country’s outlook to negative from stable, citing further weakening in some fiscal metrics in an environment of subdued GDP growth, which could lead to renewed balance of payments pressure.

The Central Bank reduced the spot rupee’s peg to 144.50 per dollar last week, from 144.75 levels in early June. The spot rupee was not actively traded for a seventh straight session on Wednesday, dealers said.

The spot closed at 144.85/95 per dollar on 13 June.

The spot rupee was pegged down after the local currency rose following increased dollar conversions by exporters and overseas funds.

For a fifth straight day, there was no active trading in three-day dollar/rupee forwards, known as spot next. The forwards closed at 144.85/90 per dollar on 15 June.

Spot next, which has acted as proxy for the spot currency since January, indicates the exchange rate for the day following conventional spot settlement.

For Wednesday’s trade, the spot next settlement takes place five days ahead due to the intervening weekend.

Foreign investors net bought 6.67 billion rupees ($46.06 million) worth of Government bonds in the week ended 15 June, Central Bank data showed.

A lack of large inflows from exporters and borrowings were however weighing on the currency, dealers said.