Rupee steady; more downward pressure seen with rising credit growth
Tuesday, 18 February 2014 00:01
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Reuters: The rupee ended steady on Monday as demand for the greenback from importers helped offset exporter dollar sales after the Central Bank kept its key policy rate steady.
The spot rupee ended at 130.83/87 per dollar, but the market expects the local rupee to be under downward pressure when credit growth picks up.
The Central Bank said a net $119 million came into the stock and bond markets this year through 10 February and the Central Bank has absorbed $ 58.7 million to prevent volatility in the rupee.
However, a former Central Banker and an economics professor warned over the weekend that the stable exchange rate, which is defended via selling and buying dollars in a lower interest rate regime, is not sustainable.
“The rupee already shows signs of depreciation in the face of high import demand buttressed by low interest rates,” Sirimevan Colombage, a senior professor at the Open University of Sri Lanka, wrote in the Sunday Times.
He said either a significant depreciation of the currency or an upward movement of interest rates or both is inevitable in the absence of tangible growth in the export sector.
Central Bank Governor Ajith Nivard Cabraal said “the current conditions are sustainable,” in a Twitter session responding to a Reuters question on how long the bank can maintain lower interest rates and steady exchange rate. He did not elaborate.
Currency dealers and traders said the Central Bank’s current policies should work until the market sees a jump in private sector credit growth, which bottomed out with a gain of 7.5% year-on-year in December from 7.3% a month earlier.
Dealers expect the Central Bank to keep the currency below 130.85 per dollar until April. Usually, the rupee is under pressure in March and early April due to seasonal imports ahead of the traditional New Year in mid-April.
The rupee has gained about 3.3% since it hit a record low of 135.20 on 28 August last year. It lost 2.5% in 2013.
