CB expects currency volatility to ease

Reuters: The Central Bank said yesterday the rupee volatility was because of hedging by importers and that it expects the currency to recover.

The rupee fell 2.16 per cent on Tuesday to an all-time low after the Central Bank stopped intervention in the market.

The currency has weakened 5.22 per cent in the last three sessions after the Central Bank changed its intervention method to a quantity, instead of defending a particular level of the currency against US dollar, after spending more than $ 2.7 billion to defend the currency since July.

“This will not last long. We expect the volatility to calm down soon as we will provide foreign exchange for oil bills,” K.D. Ranasinghe, an Assistant Governor at the Central Bank, told Reuters from Korea.

Ranasinghe said that the payments for oil were the largest bills and once the Central Bank intervened to pay the oil bills, the rupee would stabilise with the Central Bank pumping dollars into the market.

“The current volatility is basically because of importers booking forward and we believe this is a long overdue correction.”

At least two currency dealers said that the rupee highest traded at 120.10 a dollar from Monday’s close of 117.50; its highest close of 120.10 was on 27 April 2009.