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Indian Rupee Recovers on New RBI Chief And Suspected Intervention

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.

via Reuters [1]

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Alfonso Esparza

Alfonso Esparza [6]

Senior Currency Analyst at Market Pulse [7]
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza
Alfonso Esparza

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