Mumbai: The Indian rupee climbed to its highest level in nearly eight years on 4 April, breaching 43 to a dollar as banks sold the US unit to raise funds to meet statutory reserve requirements.
“With cash in the system remaining so tight, the market was expecting the rupee to go past 43 today,” said a dealer with a private bank.
“And it’s becoming evident that the RBI no longer considers any particular level sacrosanct,” the dealer added, referring to the Reserve Bank of India.
The RBI is suspected of having sold rupees regularly since November to thwart its rise.
The local currency has gained about 9.5% since hitting a three-year low last July, and the central bank is thought to be uneasy with the rupee’s pace of appreciation.
Still, the RBI’s recent intervention has fuelled money supply growth and inflation, both running above the central bank’s comfort band.
In a bid to tame inflation and credit growth, the central bank unexpectedly raised its short-term lending rate last week, as well as the proportion of cash banks have to keep with it on deposit.
Traders said the move had compelled banks to sell dollars to generate funds to meet the statutory requirement.
Overnight interbank loan rates traded at 9-10%, above 6-7% when cash supplies are adequate. The rates had hit 80 percent on Friday, their highest in more than a decade.
Posts
No comments:
Post a Comment