Rupee falls on IIP figures, impact of RBI action muted

May 11th, 2012 - 9:07 pm ICT by IANS  

Mumbai/Bangalore, May 11 (IANS) The rupee fell again Friday closing at 53.63 to the dollar after data showed a fall in factory output for March.

The rupee had ended at 53.44 Thursday. Having fallen for six consecutive weeks, the rupee remains within sight of a record low of 54.30 against the dollar hit last December.

Market experts and traders said there were no visible signs of dollar selling during the day after the Reserve Bank of India (RBI) Thursday asked exporters to convert half of their forex holdings into rupees.

They said markets only felt a muted impact after a deputy governor of the RBI said the central bank had intervened in the volatile currency market to curb speculation in the weakening of the rupee against dollar and ensure genuine dealings.

“The intervention has been motivated by the pressures we see in the market based on calculations about costs and benefits of such a measure. Curbing speculation in the forex (foreign exchange) market is avery important objective and all our measures always had that in mind,” Deputy Governor Subir Gokarn told reporters here on the margins of an industry meeting here.

Defending the intervention as timely, Gokarn said to dub the measure being too little, too late was not a fair judgement because if it (intervention) was done at the wrong time, the cost would have been quite significant while some benefits may be visible.

“We want to make sure in pursuit of one set of objective, we are not undermining other speculation. It is a very delicate balancing act and our timing and choice of instruments is based on those concerns,” Gokarn said after an interactive session with members of the Confederation of Indian Industry (CII) southern region here.

In a bid to stem a sliding rupee, the RBI Thursday directed exporters to convert 50 percent of their foreign exchange earnings kept in bank accounts into rupee, as demand for the greenback (US dollar) resulting in the rupee depreciating to 53.85 Wednesday.

The apex bank had also cut the banks’ intra-day positions to five times of the net overnight positions set after the curbs it took December 15.

“To the extent we have the power, capacity and instruments, we will use them to prevent rupee from the spiral of sharp depreciation,” Gokarn asserted.

Noting that the central bank’s goal was to provide stability in the forex market, the deputy governor said the intervention was to minimise the pressure on the dollar from speculative channels.

“At the same time, we have to ensure genuine use of dollar for production and trading activity is not affected. Demand-supply will decide the currency level though stability in the market is critical. Increasing capital inflows will also help in stabilising the rupee,” Gokarn observed.

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