Rupee forwards end steady as CB prevents decline

Saturday, 23 May 2015 00:56 - - {{hitsCtrl.values.hits}}

Reuters: Rupee forwards ended steady on Friday after the Central Bank kept its key policy rates unchanged, but dealers said the currency would face pressure until either dollar inflows pick up or interest rates rise.

The Central Bank on Friday prevented any likely declines to the currency via moral suasion, dealers said.

In the monetary policy for May, the Central Bank said the rupee has depreciated against the dollar by around 2% so far this year.

Actively traded three-month forwards ended steady at 136.55/70 per dollar.

“The Central Bank did not allow the three-month forwards to trade below 136.55 through moral suasion. There is pressure from importer dollar demand,” a currency dealer said on condition of anonymity.

Another dealer said the market was concerned about how far the Central Bank could prevent depreciation pressure and would have to eventually settle for it, or raise interest rates and make the currency expensive in the absence of inflows.

Two-month forwards were unchanged at 135.50/80 per dollar and one-month forwards were steady at 134.70/90, as the Central Bank prevented the currency from falling.

Central Bank officials were not available for comment.

The Central Bank on Wednesday allowed the spot to fall 20 cents or 0.15%, the fifth downward adjustment since 30 April and a move that dealers said reflected lower domestic interest rates and a broadly strong dollar.

The Central Bank has already allowed the spot rupee to fall 0.6%, or by 80 cents, to 133.70 since 30 April to account for broad gains in the dollar and rising credit demand in a low rate environment.

However, dealers say the depreciation was not adequate and the market had adjusted to trade forwards after the Central Bank was seen preventing the currency from falling sharply.

The bank regulator allowed the spot rupee to fall 0.3%, or 40 cents, this week alone.