The Reserve Bank of India on Thursday bought dollars in the foreign exchange market to prevent the rupee from rising further.
MUMBAI: The Reserve Bank of India on Thursday bought dollars in the foreign exchange market to prevent the rupee from rising further. The Indian currency on Wednesday crossed the psychological Rs 40.50 per dollar mark for the first time since May 1998.
The rupee hit a intra-day low of Rs 40.35 on Thursday, before closing at Rs 40.44 per dollar.The central bank stepped in early, buying dollars through state-owned banks. The rupee had even threatened to rise above Rs 40.40 in the first few minutes of trade.
“They were there. They came in early and were even seen buying close to the end of trade,” said a dealer from a US bank, adding that the central bank must have bought $300-$400 million today.
Dollar buying from the RBI had subsided in the last few days but it has again picked up this week.The rupee has risen beyond Rs 40.50 per dollar on the back of a strong performance of the local stock market this week.
Foreign funds more than doubled purchases of shares to $5.93 billion this year to July 3 from a year earlier, according to Sebi data.
Dollar buying by the RBI is likely to add to the already flush liquidity in the money market. Dealers are expecting a market stabilisation scheme auction announcement of Rs 5,000 crore or more from the RBI on Friday.
But they admit it may not be enough to take the call rate close to the 7.75% repo rate.
“The surplus in the market is about Rs 20,000 crore so the MSS auction may not be enough. A CRR hike looks the best option right now. But till inflation is low around 4% the RBI may be comfortable,” said a dealer with another US bank.
The Reserve Bank of India has been seeking to limit the rupee's gain and slow the pace of inflation. The central bank purchased an average $4.8 billion of foreign exchange each month from January to April, according to its latest data.
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