Rupee rebounds from record low on State bank dollar sales

Reuters: The spot rupee edged up on Friday after hitting a record low in the previous session as a state bank, through which the Central Bank usually directs the market, raised its dollar selling rate by 10 cents to 134.10, dealers said.

On Thursday the currency fell 0.15% or 20 cents, to hit an all-time low of 134.20 per dollar, as the State bank lowered its dollar selling rate by 20 cents on Thursday. It closed at 134.10 on Friday.

“The rupee ended firmer in dull trade. The State bank raised the selling rate by 10 cents to 134.10,” a currency dealer said on condition of anonymity.

Currency dealers told Reuters that it would not be sustainable to defend the rupee with State bank dollar sales in the long run as this could bring down foreign exchanges reserves to a “dangerous level”. 

Currency dealers see persistent downward pressure on the rupee due to a strengthening US currency amid exits by foreign investors from Government securities due to speculation over a rate hike by the Federal Reserve sooner rather than later.

Central Bank Governor Arjuna Mahendran said last week that the country should let market forces determine its rupee exchange rate and warned that trying to buck the global trend of a rising dollar was “suicidal”. 

The rupee, which has fallen 2.2% so far this year, is on the decline mainly due to a stronger dollar, the Central Bank has said, while higher imports and private sector credit in a lower interest rate regime also weighed on the currency.

Three-month forwards ended at 136.10/25 per dollar, little changed from Thursday’s close of 136.10/20.