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Gains in rupee to be limited as RBI likely to continue intervention

The rupee could continue to appreciate this week after a historic win for the Bharatiya Janata Party in the general elections. However, currency experts warn that the Reserve Bank of India (RBI) would keep mopping dollar flows in domestic markets through state-run banks. Due to which, the appreciation in the rupee might be limited.

On Friday, the rupee ended at 58.78, compared to Thursday’s close of 59.29 a dollar. The rupee had opened at 58.96 and during intra-day trades, it touched a high of 58.62. Experts had said earlier the rupee might not strengthen above the 58.50 mark, due to intervention by RBI in order to safeguard exporters’ interests. The previous time when the rupee had touched such a level was on on June 19, 2013, at 58.72.

“Given the political strength and dilution in external headwinds, the medium and long-term outlook for the rupee is bullish. The concern, however, is on the near term, on possible removal of import curbs on gold and the need to retain the rupee’s stability at 59-60 to support exports till current account deficit-related woes are out of the way,” said Moses Harding, group chief executive officer (liability and treasury management) and chief economist of Srei Infrastructure Finance. According to Harding, near-term stability in the rupee is preferred at 58-59.50 a dollar.

Foreign exchange reserves rose by $ 1.97 billion for the week ending May 9 to $ 313.83 billion, RBI data released on Friday showed. The reserves are near a level previously seen on November 11, 2011. The reserves stood at $ 314.34 billion for the week ending November 11, 2011.

Yields on government bonds might fall marginally this week, as according to dealers, profit booking would continue, which would limit the fall. The yield on the 10-year bond ended at 8.83 per cent compared with the previous close of 8.78 per cent. “The bond market will be looking forward to the Budget. It will be difficult for the 10-year-benchmark yield to break 8.65-8.70 per cent,” said Brijen Puri, executive director and head of markets, JPMorgan.

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