USD/INR Below 60 as RBI Governor Prepares for G20 Meeting

The Indian Rupee had a volatile start to the trading week. After opening the currency went through the 60 rupee per dollar price level where it remained for most of the morning. There was some INR appreciation as rumours about two cancelled appearances by the Head of the Reserve Bank of India hit the wires. The personal appearances had to be cancelled for RBI governor Duvvuri Subbarao to meet finance minister P. Chidambaram. Subbarao leaves for the G20 meeting in Russia later in the week. Although the agenda for the meeting is not known, it would be hard to imagine the Rupee not being on it.

Last week the RBI was very active. Reaching out to trading desks to ask them to reduce their speculative INR positions. Another tactic used by the Central Bank is the fact that they have directed Oil refiners to centralize their USD transactions with a single designated bank to avoid additional market speculation if they seek competing bids on their currency transactions.

Emerging markets are on alert this week. US Federal Reserve Chairman will addresss both the house of commons and the senate on Wednesday. Given the fears of quantitative easing are receding after the release of the FOMC meeting. The minutes showed a division within the central bank. That being said Bernanke is the one man who could make the USD come roaring back. The Rupee has managed to say around the 60 mark but traders will be following both addresses for more clues about the Fed’s plans.

The INR was boosted in the New York session by a decision by the Reserve Bank of India to limit the amount of the currency that it will offer for local banks to borrow on a daily basis. The cap is $750 billion. Rates for the Marginal Standing Facility have also been raised. The RBI is also expected to sell 120 billion government bonds issued in rupees additional to the already planned 150 billion bond sale. The three steps have boosted the currency versus the USD as they combine to make the INR more attractive to hold.

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