Rupee ends weaker for 2nd day as State bank raises dollar peg

Reuters: The rupee ended weaker on Thursday for the second straight session as a State-run bank raised the currency’s peg against the dollar by 10 cents to allow the exchange rate to depreciate to 133.90, dealers said.

Demand for dollars by importers increased after the move while exporters stayed away expecting the currency to depreciate further, dealers said.

The rupee ended at 133.90 per dollar, lower than Wednesday’s close of 133.80/85.

“It’s a one-way process, only importers are there. Exporters are staying away, expecting further depreciation. Ideally, it should depreciate but it’s at the Central Bank’s discretion,” said a currency dealer asking not to be named.

Dealers said the currency should depreciate to at least 135 levels in the short term if the Central Bank permits, in line with the depreciation of other global currencies against the dollar.

One of the two state banks, through which the Central Bank usually directs the market, started to sell dollars at 133.90 a day after it depreciated the currency by five cents to 133.80.

The currency has fallen 0.3% since 5 August as the State-owned bank raised the currency’s peg against the dollar by 40 cents on three occasions, allowing the exchange rate to fall.

The fall in China’s yuan, which hit a four-year low on Wednesday after the country’s central bank devalued the currency on Tuesday, has sparked fears of a “currency war” and roiled global financial markets, dragging other Asian currencies to multi-year lows.