The rupee recovered smartly on Wednesday from the 15-month low reached a day before, as the Reserve Bank of India (RBI) stepped in with heavy dollar sales.
Besides, trade data for April, released after market hours on Tuesday, showed that non-oil imports fell and exports made a robust recovery, despite rising global crude oil prices.
At 1 pm, the rupee was trading at 67.84 a dollar, down from its previous close of 68.11, a level last seen in January 2017. Bond yields, though, remained stable at 7.89 per cent, compared with the previous close of 7.90 per cent.
Currency dealers said nationalised banks were heavy sellers of dollars since the opening of the market. The rupee had hit 68.1325 a dollar in the morning trade, but persistent dollar selling by nationalised banks strengthened it to as much as 67.75-a-dollar level. When the RBI intervenes in the market, it does so through a clutch of nationalised banks. The dollar index, which measures the greenback’s strength against major currencies, remained stable at 93.229 at the time of writing of this story.
Even as RBI chipped in on Wednesday, it was absent from the market on Tuesday, causing panic among traders. But that has dissipated now. “There is no panic at all, bonds have also stabilised. Exporters have slowly started selling in the markets at these levels,” said a senior currency dealer with a foreign bank.
But the bond market could come under pressure as analysts have started expecting a sharp hike in rates by the RBI in the coming days. "We now expect a total of 50-basis-point rate hikes in June and August, compared with our previous call of no change. The MPC is likely to shift its stance to ‘withdrawal of accommodation’ from ‘neutral’. We have revised FY19 (ending March-2019) CPI inflation forecast to 4.80 per cent from 4.45 per cent previously, on higher crude oil prices, a weaker rupee and a surprise uptick in core CPI in April," said Anubhuti Sahay, chief economist of Standard Chartered India.
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