Rupee retreats after early surge

Saturday, 3 March 2012 00:50 - - {{hitsCtrl.values.hits}}

Reuters: The rupee rose sharply in early trade on Friday after the Central Bank slashed commercial banks’ net dollar opening positions, but retreated to close at marginally stronger.

The rupee touched 119.00 a dollar, a gain of 2.8 per cent from Thursday’s close of 122.25/40, in early trading after the Central Bank’s order boosted dollar supply in the market.

But by the close, it had retreated to 121.40/70, 0.7 per cent firmer on the day but snapping a week-long weakening trend.

The Central Bank cut commercial banks’ net dollar opening positions to a third to square off banks’ deficit and surplus, A.A.M. Thasim, Additional Director at the Central Bank’s International Operations Department, told Reuters.

“Some banks with surplus dollars unwound their position in the early trade, but later the rupee fell due to importer dollar demand,” said a currency trader on condition of anonymity.

The Central Bank, after spending more than $ 2.7 billion in foreign exchange reserves in the second half of 2011 to fend off depreciation, last month changed its policy of protecting a specific exchange rate.

But it has intervened once already, pulled a handful of regulatory levers and engaged in moral suasion to keep the rupee from falling further.

The Central Bank wants to ensure foreign investors do not cash in the more than $ 2 billion they have placed in rupee-denominated securities.

A Reuters monthly forex poll on Wednesday forecast the rupee to fall as far as 128.50 by the end of August.

The rupee has fallen 5.7 per cent since 9 February, when the Central Bank stopped defending it.