Rupee is the worst performer in emerging Asia as RBI tries to lift economy

The RBI bought has about $18 billion of foreign exchange since the end of September.

The Reserve Bank of India’s efforts to support the flagging economy are turning out to be a bane for the rupee. The currency is the worst performer in emerging Asia this quarter, and analysts say that’s because the central bank is mopping up dollars gushing into local stocks and bonds.

The RBI bought has about $18 billion of foreign exchange since the end of September, according to estimates by Bloomberg Economics. While the purchases have propelled reserves to a record, the rupee has fallen about 0.7% since Sept. 30.

Weakness in the rupee despite robust inflows is seen as a sign the central bank wants to curb a sharp appreciation in the currency that can hurt exports. With slew of data pointing to weak economic activity, boosting shipments is high on agenda for the government.

“Part of the rupee’s under performance is deliberate,” said Mitul Kotecha, a senior EM strategist at TD Securities in Singapore. “Higher reserves prove that the central bank is probably making determined efforts to keep the rupee’s competitiveness.”

The RBI has said it does not target any particular level of exchange rate and steps in only to curb undue swings in the currency. Though, as the rupee was heading for its worst quarterly decline in a year in the three months ended September, Governor Shaktikanta Das said September 19 that the currency is fairly valued, indicating tolerance for a weaker rupee.

Rupee falls 38 paise to 74.06 over strengthening US dollar, RBI-govt rift

A stable crude oil prices, however, restricted the rupee fall to some extent, forex traders said

Share Market News: The rupee dropped by 40 paise to 74.08 against the US dollar in early trade Wednesday, amid increased demand of the American currencies from importers and sustained foreign fund outflows. Forex traders said, the US dollar’s strength against some currencies overseas and concerns around the rift between the government and the RBI also weighed on the local unit.

At the interbank foreign exchange, after opening lower at 73.91, rupee weakened further to quote at 74.08 against the dollar registering a fall of 40 paise over its pervious close. The rupee Tuesday depreciated by 23 paise to close at 73.68 against the US dollar.

A stable crude oil prices, however, restricted the rupee fall to some extent, forex traders said. Globally, Brent crude, the international benchmark, was trading 0.62 per cent up at $76.38 per barrel.   

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Meanwhile, the Reserve Bank of India has said that it will inject Rs 400 billion into the system in November by buying government bonds through open market operations (OMO) for maintaining liquidity in the market. On a net basis, foreign investors pulled out Rs 15.92 billion from equity markets Tuesday, as per provisional data.

Meanwhile, the benchmark BSE Sensex opened on a higher note up 158.99 points but soon pared the gains and was trading at 33,876.69, down 14.44 points or 0.04 per cent at 0948 hrs.