Rupee hits new record low...Recovers on RBI intervention

The Indian rupee recovered from session lows to end slightly higher against the US dollar as the Reserve Bank of India (RBI) intervened to defend the beleaguered domestic currency and exporters sold the greenback. The euro inched up from two-year lows against the dollar on Friday, partly helping the rupee recover. The rupee still closed down for an eight successive week, having hit seven straight record lows since May 16. Its latest was on Thursday when it fell as low as 56.39. This is the rupee's longest losing streak since the 11-week fall that culminated in October 2008. The rupee ended the day at 55.3750 per dollar after being as high as 55.2350 and as low as 56.0850. It opened at 56.00 as against the previous close of 55.6550. Its weekly low was 56.39 while its weekly high was 54.4350. It had closed at 54.39 last Friday. The RBI is likely to have sold dollars in spot markets via public sector banks to prevent the rupee from falling beyond the psychologically key level of 56 per dollar, according to reports. The RBI is also said to have intervened in the forward markets. Some banks were seen selling off their long dollar positions ahead of the weekend. Some selling from exporters who had missed Thursday's deadline to convert half of their foreign currency holdings into rupees was also cited by traders, according to reports. Besides selling of dollars by some public sector banks and exporters, a rebound in the local stocks and steps taken by the RBI helped the rupee recover from an all-time low on Thursday. The RBI will take the required steps, consistent with its policy, to curb swings in the rupee, RBI Governor D. Subbarao said yesterday. "We have taken action to improve the current flows, encourage inflows and also to curb speculation," Subbarao told reporters in Mussoorie. "We will do whatever is necessary, consistent with our policy." "The rupee movement is a function of the external situation as well as developments in the current account and capital account of the balance of payments," Subbarao said. "Some structural changes are necessary for an improvement in the current account." Subbarao, who spoke after attending a board meeting of the central bank, said that the RBI was continuously monitoring the exchange rate. India isn’t contemplating selling sovereign bonds abroad, he said. Subbarao said that the central bank won’t rule out the possibility of selling dollars directly to oil refiners. The USD/INR is expected to hover around 56 and 54 in one and three months respectively, with an upside risk, before retreating only modestly to around 52 and 51 in six and 12 months, according to Barclays Capital. Any pullback in USD/INR is likely to be largely dependent on policy initiatives or an improvement in global risk appetite, the UK-based bank says in its report. Barclays expects the RBI to eventually float USD-denominated bonds through public sector banks like the State Bank of India for non-resident Indian investors. Meanwhile, economists at Goldman Sachs and Bank of America-Merrill Lynch have joined Morgan Stanley in scaling back their GDP growth forecasts for India. Goldman Sachs said it was cutting its GDP forecast to 6.6% from 7.2% for the fiscal year ending in March 2013, citing a weaker investment outlook on the back of domestic policy uncertainties. The Wall Street investment bank also revised higher its wholesale price inflation (WPI) forecast for FY13 to 6.5% from 5%, citing higher food prices and a potential increase in fuel prices. Goldman now expects only 50 basis points in additional rate cuts for calendar year 2012, from its previous forecast of 75 bps. Merrill Lynch also downgraded its GDP view for India, to 6.5% from 6.8% previously for FY13, though it cited the fallout from the eurozone crisis as its main rationale. "We continue to believe that the worst is over, but there is still pain left," Merrill said. Morgan Stanley earlier this week cut its FY13 growth forecast for India to 6.3%, citing as a key reason the Government's expansionary policy of supporting consumption while investment slows. The euro rose marginally from a 22-month low against the dollar after Italian Prime Minister Mario Monti said that Greece will probably stay in the euro, and Germany can be persuaded to support Europe’s "common good. The 17-nation currency appreciated for the first time in four days against the yen. The gains trimmed declines of ~5% versus the dollar and the yen this month. Sweden’s krona advanced as demand for higher yields boosted stocks. The Dollar Index fell from the most in 20 months. The Dollar Index, which tracks the US currency against six major rivals, declined 0.3% to 82.054, after climbing as high as 82.411, the most since September 2010.