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Rediff.com  » Business » Currency unlikely to plunge to Rs 68 to a dollar

Currency unlikely to plunge to Rs 68 to a dollar

November 10, 2013 10:07 IST

RBI's  steps will prevent rupee from slipping, even if OMCs meet entire $ demand from market


Despite demand for dollars from state-run oil marketing companies (OMCs) emerging in the foreign exchange market, experts feel the rupee wouldn’t weaken to the levels seen in August, as various steps taken by the Reserve Bank of India (RBI) have improved the situation.

On Friday, the rupee closed at 62.48/dollar, compared with its previous close of 62.42/dollar. It opened at 62.7 and, during intra-day trade, touched a low of 62.75 a dollar. However, it recovered due to dollar sale by public sector banks.

On Thursday, Economic Affairs Secretary Arvind Mayaram had said now, the foreign exchange market accounted for 30-40 per cent of the dollar demand of state-run oil companies.

On August 28, RBI had opened a forex swap window for the three public sector OMCs—Indian Oil Corporation, Hindustan Petroleum Corporation and Bharat Petroleum Corporation—as on that day, the rupee had fallen to an all-time low of 68.85/dollar during intra-day trade.

The combined monthly dollar demand of all the OMCs is $8-8.5 billion.

“We have seen only 30-40 per cent of the demand for dollars from state-run OMCs. We need to look at how the inflows of the dollar pan out. Even if there is volatility in the rupee against the dollar, the rupee may weaken up to 64 a dollar in the near term, in the worst scenario,” said S Srinivasaraghavan, head of treasury at Dhanlaxmi Bank.

Since the beginning of this financial year, the rupee has fallen 15 per cent. Tracking the weak rupee, government bond yields rose. On Friday, the yield on the 10-year benchmark government bond ended at 8.99 per cent, compared with the previous close of 8.85 per cent. The yield is near the levels seen in mid-August. On August 19, the yield had closed at 9.23 per cent.

In the near term, the rupee may weaken further. “The current account deficit has been brought under control; fiscal deficit is under control and exports have picked up. We are also seeing foreign institutional investors investing in equity. Due to these factors, the worries we had in August aren’t there. But will full demand of OMCs coming to the market, the rupee will trade at 62-63 a dollar,” said N S Venkatesh, chief general manager and head of treasury, IDBI Bank, and chairman (fixed income), Money Market and Derivatives Association of India.

Neelasri Barman in Mumbai
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