The rupee was trading strong by 64 paise at 59.22 against the dollar at 2.39 p.m. local time.
The rupee gained 66 paise to 59.20 per dollar in the opening trade against the previous close of 59.86 on Tuesday after the central bank issued a series of liquidity measures.
In a step to clamp the further decline in the domestic unit against the US dollar, the Reserve Bank of India (RBI) had on Monday issued a series of liquidity measures. Bonds yields are now expected to go up while a dearer rupee is likely to create a squeeze in the availability of funds.
The RBI has raised the Marginal Standing Facility (MSF) rate and bank rate each by 200 basis points to 10.25 per cent, capped the amount up to which banks can borrow or lend under its daily liquidity window and announced a sale of government securities through an open market operation.
The central bank has said that the total funds available under its repo window will be capped at 1 per cent of bank deposits - roughly Rs 75,000 crore - from Wednesday. It has also announced a Rs 12,000 crore sale of government bonds for Thursday.
The Consumer Price Index (CPI) inflation for June almost touched double-digit growth at 9.9 per cent against 9.3 per cent in May.
The index of industrial production (IIP) for May fell 1.6 per cent, versus a growth of 2.3 per cent in April, way below the market expectations of 1.4 per cent.
Further, the rise in inflation numbers in June signal a limited scope for a rate cut later this month in the first-quarter review of the monetary policy.
Last week, the central bank and market regulator took steps to curb speculative trading in the currency market. This has helped contain volatility. However, the weakness in the rupee continued.
“The RBI and the Ministry of Finance are getting active to announce measures to help boost the rupee. The recent measures would be positive for the rupee in short-run. The exporters were asked to cover at around 60.00 - 60.50 levels, and advised to pre-utilise all the old forward covers taken at lower levels with any correction seen in the market,’’ said Abhishek Goenka, Founder and CEO, India Forex Adviors.
According to Dharmakirti Joshi, Chief Economist, Crisil, “The emerging economies are facing a current account deficit (CAD) problem and right now our ability to attract capital flows is low. Hence, the measures by the government to finance the CAD by attracting more capital flows should support the currency.”
“Though, a lot of the stability in the rupee will depend on the global volatility and risk appetite of the investors. In the shorter term, the volatility in the rupee is set to continue,” Joshi said.
