Rupee near 1-year high; CB allows gradual appreciation

Saturday, 7 June 2014 00:07 -     - {{hitsCtrl.values.hits}}

REUTERS: The rupee ended firmer near a one-year high on Friday as dollar sales by exporters and banks offset importer demand, while state banks lowered the buying rate for the greenback with the Central Bank saying it was allowing gradual appreciation in the currency to prevent a sudden shock. The rupee ended at Rs. 130.26/30 per dollar, its highest close since 26 June, 2013 and firmer from Thursday’s close of Rs. 130.28/30. Dealers said the two state banks, through which the central bank intervenes to direct the market, bought dollars at Rs. 130.26 on Friday, 2 cents below Thursday’s rate, to prevent sharp volatility. The Central Bank, through state banks, bought the currency at Rs. 130.35 on 30 May and started lowering its buying rate since Monday through Friday, allowing gradual appreciation. “There is some appreciation pressure as of now,” Central Bank Governor Ajith Nivard Cabraal told Reuters. “We are giving effect to such trend on a gradual basis so that all stakeholders have time and space to adjust to the changes, without any sudden shock.” On Monday, the Central Bank had said dollar buying by state banks was for oil imports. An official at the bank’s International Operations Department told Reuters on Monday the bank had been buying only excess dollars. Central Bank Governor Ajith Nivard Cabraal told Reuters last week that the Central Bank would keep intervening in currency markets to prevent a rapid rise in the rupee. He said the country would probably see a tendency for the rupee to appreciate in the next few years, and the Central Bank was keen that whatever movement takes place happens in a “fairly gradual” manner. Ananda Silva, one of the Two Deputy Governors at the bank, told Reuters last week that the monetary authority has absorbed over $ 400 million as of 27 May this year to prevent a sharp gain in the rupee. Dealers say the Central Bank’s intervention has prevented gains in the currency and expect it to face upward pressure until credit growth and imports pick up. Despite multi-year low interest rates, data on 5 May showed private sector credit grew at a four-year low of 4.3% in March from a year earlier. It hit a record 35.2% in March 2012. “We don’t see much improvement in imports also and the exporters are selling dollars with the rates coming down on the expectation that rates will come down further,” said a currency dealer asking not to be named.