Rupee edges up ahead of monetary policy announcement

Thursday, 2 January 2014 00:00 - - {{hitsCtrl.values.hits}}

Reuters: The rupee ended a tad firmer on Wednesday as banks sold dollars expecting at least a 50-basis-points cut in the Central Bank’s key policy rates amid a fall in Treasury bill yields, dealers said. The spot rupee closed at 130.65/75 per dollar, slightly firmer from Tuesday’s close of 130.75/90. The market expects the Central Bank to cut its key policy rates to multi-year lows on Thursday to stimulate economic growth. “There was forward selling by banks ahead of the rate announcement, expecting at least 50-basis-points cut (in the key policy rates),” a currency dealer said on condition of anonymity. Yields on treasury bills fell to their lowest since 11 November 2011 at a weekly auction on Wednesday and dealers said the reduction also added pressure on the rupee forward premiums. Dealers said the three-month forward premium fell by 30 cents while six-month and one-year forward premiums dropped by around 50 cents and 20 cents respectively. Dealers expect the currency to appreciate in the first quarter of 2014 due to a possible dollar bond inflow, before falling due to lower interest rates pressurising the exchange rate amid a pick-up in importer dollar demand. The local currency has gained about 3.3% since it hit a record low of 135.20 on 28 August. It has lost 2.5% in 2013 following a 10.7% depreciation in 2012.

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