Rupee weaker after State-run bank raises dollar peg

Tuesday, 25 August 2015 01:31 - - {{hitsCtrl.values.hits}}

Reuters: The Sri rupee ended weaker on Monday for the second straight session after a State-run bank, through which the Central Bank usually directs the market, raised the currency’s peg against the dollar by 10 cents, allowing the exchange rate to depreciate to 134.10.

The market had expected the Central Bank to allow a slight depreciation in the rupee, in line with other regional currencies that have declined against the dollar.

The rupee ended at 134.10 per dollar, 0.07% weaker from Friday’s close of 134.00.

“There is heavy importer demand and exporters are not selling dollars,” said a currency dealer, asking not to be named.

Defending the rupee could have a negative impact on the country’s international trade due to an over-valued currency, dealers said.

Currency dealers expect the Central Bank, which has so far this year directed the market through the State-run bank, to let the currency remain weaker after last week’s parliament elections due to importer dollar demand and the global trend of weakening currencies against the dollar.

Analysts said the rupee may fall to 137 levels in the short term if the Central Bank allows it to depreciate without defending it, in line with the weakening seen in other global currencies.

Dealers said the rupee is under pressure to depreciate with heavy importer dollar demand and reluctant exporter greenback sales.

Central Bank officials were not immediately available for comment.

The currency has fallen 0.45% since 5 August as the State-owned bank raised the currency’s peg against the dollar by 60 cents on five occasions, allowing the exchange rate to fall.