Rupee falls after state-run bank raises dollar peg

Reuters: The rupee fell for a third straight session on Tuesday after a State-run bank, through which the Central Bank usually directs the market, raised the currency’s peg against the dollar by 15 cents, allowing the exchange rate to depreciate to 134.25.

The rupee closed at 134.25 per dollar, 0.11% weaker from Monday’s close of 134.10. It has fallen 0.26% in the last three sessions.

“Though the state bank defended the rupee at 134.25, custom transactions were higher than the rate. Outside inter-bank dollar buying happened at more than 134.25 and importers bought at more than the exporters’ selling price,” said a currency dealer on condition of anonymity.

“There was importer dollar demand and the market is finding its equilibrium because the Central Bank is not easily offering dollars to the market. As an emerging market, we may see some dollar scarcity with what is happening in China.”

The market had expected the central bank to allow a slight depreciation in the rupee, in line with other regional currencies that have declined against the dollar.

Dealers said defending the rupee could have a negative impact on the country’s international trade due to an over-valued currency.

Currency dealers expect the Central Bank, which has so far this year directed the market through the State-run bank, to let the currency remain weaker after last week’s parliament elections due to importer dollar demand and the global trend of weakening currencies against the dollar.

Analysts said the rupee may fall to 137 levels in the short term if the Central Bank allows it to depreciate without defending it, in line with the weakening seen in other global currencies.

Dealers said the rupee is under pressure to depreciate with heavy importer dollar demand and reluctant exporter greenback sales.

Central Bank officials were not immediately available for comment.

The currency has fallen 0.56% since 5 August as the State-owned bank raised the currency’s peg against the dollar by 75 cents on six occasions, allowing the exchange rate to fall.