Rupee weaker due to equity outflows, importer demand
Tuesday, 14 October 2014 02:08
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Reuters: The rupee ended weaker on Monday due to dollar demand for stock-related outflows and from importers, while dealers said the Central Bank’s moral suasion prevented the spot trading above 130.40 and forced forwards trade.
The spot currency was quoted at 130.50/60 per dollar, compared with Friday’s close of 130.40/50. Dealers said the spot rupee did not trade as banks were reluctant to trade beyond the 130.40 level, at which the Central Bank had intervened in the recent past through moral suasion.
The three-day forwards or spot next, which was actively traded in the absence of spot trade, ended at 130.55/80 per dollar, weaker from Friday’s close of 130.50/60, dealers said.
Dealers said the Central Bank also prevented the spot next from trading above 130.55 through moral suasion and sold dollars to select banks.
A Central Bank official said the monetary authority would intervene to prevent high volatility.
“There was no moral suasion as such. If there is a necessity for high deals, we will come in,” said the official asking not to be named.
“If there is excess volatility, we do come in, particularly when there is very high demand (for dollars). When we see there is pressure (on the rupee) we will come into play.”
The Central Bank in the last week of September limited the spot range to between 130.40 and 130.50, to prevent any sharp falls amid heavy selling in stocks and a pullback by foreign investors from Government securities.
Currency dealers expect the rupee to weaken due to sustained selling by foreign investors in government securities, which are already at multi-year lows, rising imports in a low interest-rate environment, and strengthening of the dollar globally. However, Central Bank Governor Ajith Nivard Cabraal said at a Reuters Global Market Forum on Monday that “there would be a greater tendency for the rupee to appreciate gently in light of the improvements in the external account”.
Overseas investors sold a net Rs. 4.23 billion ($32.4 million) in Government securities in the week ended 7 October, after selling Rs. 16.9 billion in the previous week, data from the Central Bank showed.
