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Indian rupee rebounds on 'intervention'

Mumbai, September 4, 2013

The Indian rupee staged a sharp recovery on Wednesday after suspected heavy dollar selling by the central bank, preventing the battered currency from slipping to a record low on the same day that the authority ushers in a new governor.
 
Raghuram Rajan, a former chief economist at the International Monetary Fund (IMF), takes charge at the Reserve Bank of India as the country faces its worst economic crunch since a balance of payments crisis two decades ago.
 
In a reminder of the uphill task he faces, a report on Wednesday showed that activity in India's services sector shrank in August for the second straight month for its lowest reading in four years.
 
It added to a series of data showing the economy struggling for growth. GDP figures last week said annual growth had slipped to 4.4 percent in the April-June quarter, its weakest pace in four years. The mining and manufacturing sectors contracted from a year earlier.
 
The country is grappling with a record current account deficit and a hefty budget deficit, factors both weighing on the rupee. Concerns about rising prices for oil and gold, India's two biggest import items, are keeping pressure on the currency.
 
At 0754 GMT, the rupee was changing hands at 67.23/25, up 0.6 percent from Tuesday's domestic close.
 
Dealers cited heavy central bank intervention via state-run banks, which coupled with dollar selling by foreign banks related to arbitrage opportunities with the offshore rupee market, pulled the rupee sharply back from its day's low of 68.62 per dollar.
 
The currency hit a record low of 68.85 last week, marking a drop of 20 percent from the end of 2012.
 
"The intervention has been aggressive and the best part is it has been consistent today. Even dollar/rupee levels in the offshore and currency futures markets have sharply come down," said Anil Kumar Bhansali, vice president at Mecklai Financial.
 
Rajan, who famously predicted the 2008 global financial crisis, officially becomes the 23rd governor of the RBI after signing an oath of secrecy on Wednesday. But he will not take charge operationally until Thursday.
 
Aware markets are scrutinising everything he says for clues about his intentions, Rajan has been circumspect in public, revealing little about whether he will pursue the policies of his predecessor, Duvvuri Subbarao, or change tack.
 
"The rupee will be Rajan's first and key challenge. His IMF aura may help but he will need to win the market's faith by announcing something which helps bring in dollar inflows," said Vikas Babu Chittiprolu, a senior foreign exchange dealer at state-run Andhra Bank. - Reuters



Tags: rupee | Indian | RBI |

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