Rupee edges down on importer dollar demand

Reuters: The rupee ended weaker on Wednesday, hurt by importer dollar demand even as concerns of further depreciation continued to weigh, dealers said.

The market has factored in a gradual depreciation risk for the rupee and expects a 4-5% fall in the currency this year, they said. Finance Minister Ravi Karunanayake said after market hours on Tuesday that protecting a fragile rupee was more important than controlling interest rates as the local currency tended not to rebound after depreciating.

Rupee forwards were active, with two-week forwards ending at 151.25/30 per dollar, weaker from Tuesday’s close of 151.15/25.

“The rupee is under pressure on importer demand and we will see gradual depreciation over the period,” said a currency dealer, requesting not to be named.

Central Bank governor, Indrajit Coomaraswamy, said last week the bank was not planning to abruptly stop supporting the rupee.

The apex bank has allowed the currency to gradually depreciate since mid-December, revising its spot reference rate multiple times. It has said that defending the currency with foreign exchange reserves does not “seem sensible”.

The rupee has weakened 0.47% so far this year, under pressure due to rising imports and net selling of government securities by foreign investors. It fell 3.9% last year, following a 10 percent drop in 2015.

The Central Bank kept its key rates steady last week for a sixth straight month, but flagged possible “corrective measures” in the months ahead, in a sign that further tightening might be on the cards to temper inflation pressures and safeguard a fragile rupee.

Foreign investors net sold Rs. 31.38 billion ($ 208.30 million) worth of government securities in the four weeks to 8 February, according to the latest Central Bank data.