Rupee slips to 16-month low, gains foothold with RBI help

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Mumbai: The rupee traded near a 16-month low plunging to an intra-day Rs 68.13 to the US dollar before a Reserve Bank of India intervention helped it rebound and end the day with a 0.46 per cent gain.

The RBI intervention is believed to have come after the rupee joined an emerging market currency selloff which prompted central banks from Indonesia to Turkey to intervene to stabilise their currencies.

The local currency, which is the worst performing Asian emerging market currency, bounced back from its low as some local state-run banks sold US dollars on behalf of the central bank, said dealers.

“You need to break the sentiment of speculators,” said Ashish Vaidya, head of trading at DBS Bank India. “The central bank has taken over the mandate of financial stability. In the absence of RBI’s strong intervention for last few days, unhedged importers/ overseas investors were forced to cover their exposures leading to higher dollar demand in both onshore and offshore markets.”

“It seems the rupee selloff has reached an inflection point where all negative factors have been discounted,” he said.

Rupee snip 3

Currencies are getting pummelled as surging US interest rates is leading to a flight of capital back to the US, and countries with high imports such as India which depend on overseas markets for three-fourths of its oil needs are going to be hit badly. India’s foreign exchange reserves have also fallen as much as $7 billion from their peak as the central bank without admitting to intervention has been doing so, said dealers.

A recent poll by ET forecast the currency to touch a low of Rs 68 to the dollar.

Its record low was Rs 68.86 on November 24, 2016 after significant dollar gains in the wake of Donald Trump’s presidential election victory.

The local unit touched Rs 68.825 in August 2013 after the then Federal Reserve Chairman Ben Bernanke’s statement on ‘tapering’ of bond purchases roiled global markets.

Currencies across the globe are on a wild swing amid economic and geopolitical turmoil ranging from a multi-year high in US benchmark government bond yields, and the twist and turns in North Korea-US summit with regard to dismantling of North Korea’s nuclear arsenal.

Other emerging market currencies such as Indonesia’s Rupiah and Turkish Lira have also been on the slide forcing central banks of those countries to intervene.

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