Rupee gains 15 paise to 96.81 against dollar, likely helped by RBI intervention

Kolkata: Likely regulatory intervention helped Indian rupee gain 15 paise to close at 96.81 against the greenback, bouncing back from the intra-day low of 95.94 and the previous close of 95.96 a dollar.

Market participants said that large public sector banks were seen selling dollars, on the behest of the Reserve Bank of India in a market with thin volume, helping the local currency to bounce back from the near 96 level even as global crude price hovered near $105 a barrel raising the risk of imported inflation.

RBI was seen in the market even before the opening of the day's trade leading the rupee to open stronger at 95.90 a dollar, traders said.


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During the day, the RBI used dollar-rupee sell-buy swaps to absorb rupee liquidity from the inter-bank system, two people said.

Exporters also sold dollars amid rising interest rate differential between the US and India, one trader said. This pushed the one-year forward premium higher to 3.5%, a level not seen after the last week of May.

"RBI deputy governor Poonam Gupta's remark that the rupee was overcorrected making a case for appreciation should stabilise the rupee," a treasury head of a private bank said. "At least the pace of depreciation should moderate," he said.

The rupee was weakening for the past couple of days on such concerns as well as on high dollar demand from importers who were seen mopping up the US currency ahead of the likely bank strike for their month-end payments.

"The rupee remains under pressure from external financing requirements, changing capital flows and a higher global cost of capital," said Siddharth Chaudhary, head- fixed income at Bajaj Asset Management.

"In this environment, a significant decline in domestic interest rates could work against currency stability. This may reduce the room for monetary accommodation and require real yields to remain higher than domestic inflation conditions alone would otherwise suggest," he said.

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The benchmark 10-year bond yield hit 7.14% earlier in the day before the auction, its highest intraday level since May 20. It eased a tad later on. The yield closed at 7.11% Thursday, about rising 7 basis points this week.

This is in line with the global yield tightening. The US 10-year treasury yield rose above 5.20%, its highest since 2007. Japan's 10-year yield rose to 3.115%, a level last seen in August 1996, while Germany's 10-year yield, a benchmark for the euro zone, hit a 17-year high of 3.5798%, Reuters reported.