Rupee weaker on importer dollar demand; CB says no pressure on currency

Saturday, 24 May 2014 00:00 - - {{hitsCtrl.values.hits}}

Reuters: The rupee ended weaker on Friday as late importer dollar demand outpaced exporter dollar inflows but dealers expect the currency to face upward pressure due to steady inflows and slack demand for imports and credit. The Central Bank, however, said there was no pressure on the currency. The rupee which was steady early in the day, ended slightly weaker at 130.40/45 per dollar from Thursday’s close of 130.35/38. “It (the rupee) is performing in the way we were expecting,” Central Bank Governor Ajith Nivard Cabraal told Reuters. “There is not much of a pressure from any side,” he said, referring to both appreciation and depreciation. Dealers say the Central Bank had been preventing the rupee’s appreciation over the last few weeks due to steady inflows amid lower demand for private sector credit and imports. “We don’t see credit growth picking up immediately,” a currency dealer said on condition of anonymity. “We have to wait if the Central Bank’s credit guarantee scheme for pawning loans could boost credit growth.” While maintaining the policy rate for the fourth straight month on Tuesday, the Central Bank said it expected to introduce a new guarantee scheme for gold loans to boost credit growth that fell to a four-year low in March. Moody’s Investors Service said on Friday the Central Bank’s guarantee on pawning loans would support the weak quality of pawning loans of banks, which constitute a substantial part of the recent increase in banks’ non-performing loans. Despite a multi-year low interest rate regime, data on Monday showed private sector credit grew at a four-year low of 4.3% in March from a year earlier, while imports in February fell 6.2% on the year. Dealers expect the rupee to face upward pressure until credit growth and imports reverse the trend. On Monday, Cabraal said private sector credit growth would pick up to around 15% by end-2014 and continue to improve through 2016.

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