Saturday, 7 September 2013 00:00
-
- {{hitsCtrl.values.hits}}
Reuters: The rupee was little changed on Friday and dealers said the Central Bank had directed the market not to trade the currency beyond a certain level, but it remained under downward pressure.
Four currency dealers said the central bank had directed banks not to trade cash, tom, and spot rupee beyond 133.00 per dollar and spot next or three-day forwards beyond 133.05.
The rupee spot next, which was active in the market in the absence of spot trade, traded flat at 133.05/15 per dollar.
“It is a controlled market. The Central Bank is holding the rupee through moral suasion. With the central bank trying to hold rupee-next, we see demand for rupee next-next (four-day forward) is picking up,” a currency dealer said.
“The moment the Central Bank stops its intervention, we will see a fall in the rupee. The Central Bank cannot defend the rupee forever like this.”
A Central Bank official at its International Operations Department said there was no such direction given to the market.
“These couple of days, we haven’t seen any excessive volatility. But if we see any volatility, we may come in to the market to trim that excessive moment. Other than that we are not directing or we are not doing anything in the market,” he said.
Ajith Nivard Cabraal, the Central Bank Governor, said moral suasion is in the Monetary Law Act as well as in almost every country’s central banking laws and all central banks are expected to make use of such instruments.
On Thursday, Cabraal said the rupee’s falling trend has reversed course and stabilised, unlike other emerging market currencies, and the central bank expects the currency to stabilise more due to $209 million in inflows.
The rupee hit a record low of 135.20 to the dollar last week, before recovering slightly. The Central Bank said the fall was an aberration due to unusually thin trade.
The spot rupee was quoted at 133.00/133.10 at 0714 GMT, Thomson Reuters data showed.
The rupee has been falling since early July with foreign investors pulling out of Sri Lankan Treasury bonds as US Treasury yields rose on expectations the Federal Reserve would soon begin to taper its big bond buying program.
The Central Bank’s latest data showed foreign holdings in government securities fell 2% to 493.36 billion rupees in the week ended 28 August.
Cabraal, however, said foreign holdings in Government securities is still well above the threshold limit of 12.5% of the total outstanding T-bills and T-bonds.
The rupee has fallen nearly 4% this year, after depreciating around 10% in 2012.
