CB allows rupee to fall, dealers see further weakness

Reuters: The Central Bank allowed the rupee to fall by 0.15% on Tuesday by guiding a daily trading band lower, the fourth downward adjustment since 30 April, a move dealers said reflected lower domestic interest rates and a broadly strong dollar.

Dealers also said rupee forwards traded weaker due to importer dollar demand, while the Central Bank’s moral suasion prevented a sharp fall in the local currency.

“The pressure is there but the Central Bank is preventing the fall though moral suasion,” said a currency dealer asking not to be named.

The Central Bank allowed a 20 cent or 0.15% fall in the spot rupee to 133.50 per dollar, but dealers said the spot did not trade on the day due to the regulator’s moral suasion, preventing deals below 133.50.

The Central Bank allowed the spot to appreciate 10 cents to 133.30 on Friday after allowing it to trade up 10 cents on Wednesday. It permitted the rupee to depreciate 60 cents in three calibrated steps since 30 April through 12 May.

The Central Bank has been preventing high volatility and sharp movements in the currency through moral suasion since December. Central Bank officials were not available for comment.

Actively traded three-month forwards ended at 136.30/50 per dollar compared with Monday’s close of 136.20/30 as the Central Bank defended the two-month and one-month forwards.

Two-month forwards ended at 135.50/80 per dollar compared with Monday’s close of 135.35/50. One-month forwards ended at 134.70/90 per dollar, weaker from Monday’s close of 134.50/60, as the Central Bank prevented a sharp fall.

Some foreign investors in Government securities were selling rupee-denominated Bonds, dealers said. This could pressure the currency, along with importer dollar demand.

Foreign investors sold Rs. 2.1 billion ($15.7 million) worth of Government securities during the week ended 13 May, Central Bank data showed on Friday.

The rupee has depreciated 1.5% versus the dollar this year up to 5 May, the Central Bank said on 8 May.