Written by Nimesh Vora
MUMBAI (Reuters) – India’s rupee held near an all-time low on Thursday despite intervention by the country’s central bank, with traders and analysts expecting continued pressure on the currency due to a shrinking balance of payments surplus.
The rupee was at 83.9750 against the US dollar, holding near an all-time low and avoiding a dip below 84 on Reserve Bank of India intervention.
The Reserve Bank of India has been intervening regularly in the foreign exchange markets on both sides, keeping the rupee in a narrow range for extended periods. The rupee’s three-month implied volatility is among the lowest among major Asian currencies.
The rupee resisted a rally in Asian currencies last month, which was driven by growing certainty that the Federal Reserve is likely to begin an interest rate-cutting cycle.
The depreciation pressure on the rupee in recent months is due to India’s contracting balance of payments, said Gaura Sen Gupta, economist at IDFC. First Bank (Nasdaq:), he said.
She said the balance of payments position can be measured by the net intervention of the Reserve Bank of India in the foreign exchange markets.
According to central bank data and calculations by the International Finance Corporation, the central bank sold a net of more than $2 billion between April and Aug. 25 this year, compared with a net purchase of $19 billion between April and August last year.
India posted a balance of payments surplus of $63.7 billion in the previous fiscal year, and the IFC expects this surplus to decline to $50 billion in the current fiscal year.
“From the recent price action (on dollar/rupee), it is clear that the supply and demand dynamics have shifted in favour of the dollar,” said a treasury official at a bank.
“This is why the rupee has suffered greatly despite the weak dollar.”
Comments are closed, but trackbacks and pingbacks are open.