Re weak on speculation over RBI move on curbs
The rupee weakened, reversing an earlier advance, on speculation the central bank will curb currency gains that erode export earnings.
By ET Bureau |
The rupee weakened, reversing an earlier advance, on speculation the central bank will curb currency gains that erode export earnings.
The rupee declined 0.1% to 44.56 per dollar at the close of trade on Wednesday. The currency has climbed 4.4% this year, the second-best performance in Asia.
The Reserve Bank of India’s policy is to curb volatility in the exchange rate, deputy governor Subir Gokarn said on Wednesday. The central bank raised interest rates by a quarter percentage point on Tuesday, less than the half point addition forecast by some of the economists. RBI probably capped the increase at 0.25 point to slow capital inflows that boost the rupee and hurt overseas sales, according to J Moses Harding, executive vice-president at IndusInd Bank.
“The delivery of the 0.25 point hike by RBI was indeed to limit carry-trade inflows and arrest rupee gains to help exporters,” Mumbai-based Harding wrote in a research note. Offshore forwards indicate bets the currency will drop to 44.61 to the dollar in a month, compared with expectations of 44.55 on Tuesday. Forwards are agreements in which assets are bought and sold at current prices for future delivery. Non-deliverable contracts are settled in dollars rather than the local currency.
An increase in the rupee’s one-month implied volatility rate signalled wider swings in the exchange rate. The gauge averaged 8% this week, up from 7.8% during the five days through April 16, data compiled by Bloomberg show. The indicator of expected currency swings is quoted by traders as part of pricing options.
The rupee declined 0.1% to 44.56 per dollar at the close of trade on Wednesday. The currency has climbed 4.4% this year, the second-best performance in Asia.
The Reserve Bank of India’s policy is to curb volatility in the exchange rate, deputy governor Subir Gokarn said on Wednesday. The central bank raised interest rates by a quarter percentage point on Tuesday, less than the half point addition forecast by some of the economists. RBI probably capped the increase at 0.25 point to slow capital inflows that boost the rupee and hurt overseas sales, according to J Moses Harding, executive vice-president at IndusInd Bank.
“The delivery of the 0.25 point hike by RBI was indeed to limit carry-trade inflows and arrest rupee gains to help exporters,” Mumbai-based Harding wrote in a research note. Offshore forwards indicate bets the currency will drop to 44.61 to the dollar in a month, compared with expectations of 44.55 on Tuesday. Forwards are agreements in which assets are bought and sold at current prices for future delivery. Non-deliverable contracts are settled in dollars rather than the local currency.
An increase in the rupee’s one-month implied volatility rate signalled wider swings in the exchange rate. The gauge averaged 8% this week, up from 7.8% during the five days through April 16, data compiled by Bloomberg show. The indicator of expected currency swings is quoted by traders as part of pricing options.
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