Central Bank allows spot currency to fall; 2-month forwards down
Thursday, 7 May 2015 00:00
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The Central Bank allowed the spot rupee to fall by 0.23% on Wednesday but prevented it from slipping further, as the market struggled to keep pace with higher demand for dollars from importers due to reduced selling of the greenback by exporters, dealers said.
The Central Bank permitted the spot rupee to fall 30 cents or 0.23% to 133.30 per dollar, following an easing by 10 cents to 133 on Thursday.
The spot currency was retained at the level of 132.90 since February through Thursday.
Dealers, however, said the spot did not trade as the Central Bank prevented trades below 133.30 through moral suasion.
They said the Central Bank has been keeping the spot rupee and all forwards up to two months steady through moral suasion. Central Bank officials were not available for comment.
Actively traded two-month forwards closed at 135.70/80 per dollar, down from Tuesday’s close of 135.40/60.
“There is import pressure. But nobody is converting the dollars as it is cheaper for them to borrow locally in low interest rate environment,” said a currency dealer asking not to be named.
Dealers said the market expected the currency to remain under pressure due to lower interest rates.
The International Monetary Fund in a statement on Wednesday emphasised the importance of exchange rate flexibility in protecting international reserves and facilitating external adjustment.
The country’s exchange rate has been under pressure after the Central Bank slashed key monetary policy rates on 15 April. Market interest rates have been on a falling trend since then. Yields on Treasury Bills have fallen 44-57 basis points since the rate cut.
One-month, two-week and one-week forwards were steady at 134.90/135.10, 133.90/134.00 and 133.60/70 per dollar, due to the Central Bank’s moral suasion.
