The Indian rupee ended the week on a positive note, snapping a two-week losing streak, and closed at 95.38 against the US dollar on Friday, up 16 paise from the previous session. The rupee recorded a weekly gain of 0.33%, trading within a narrow band between 95.38 and 95.75, helped by central bank intervention, said market participants. Over the past two weeks, the daily movement averaged at 14 paise.
The absence of any sharp spike in crude oil prices has also provided support, helping to limit downside pressure on the domestic currency. Oil prices were down 0.16% to $89.56 per barrel on Friday.
“The RBI is not letting the rupee depreciate, At the same time, the RBI is absorbing inflows and not letting the rupee appreciate. This is keeping the rupee in a range. In addition, reduction in crude prices and a weaker dollar are also supporting the currency,” said Ritesh Bhansali, deputy CEO, Mecklai Financial Services. He expects the rupee to trade in the range of 95-96 in the near-term.
In the calendar year so far, the rupee declined 6.4% and over the past year, it fell 10.3%. The Indian rupee was the fourth top-performing currency compared to its Asian peers in the week.
Inflows from foreign deposits are also bolstering the rupee as the special window approaches its closure on August 31, said market participants.
Banks have mopped up $65.4 billion via FCNR(B) deposits till August 21, according to the latest central bank data. Total inflows, including external commercial borrowing and overseas foreign currency borrowing, stood at $72.8 billion. Market participants expect inflows of around $100 billion from all the measures.
“The effect of foreign inflows on the rupee appears to be limited compared to 2013, when their impact was far more pronounced. The rupee remains range-bound because the foreign exchange inflows are being absorbed by the RBI, which is itself accumulating those reserves and paring short forward position,” said Amit Pabari, managing director at CR Forex Advisors.
Pabari does not expect the aggressive intervention to sustain for long. “The RBI will have to deploy their reserves prudently especially to counter periods of stress amid geopolitical uncertainty.”