Indian rupee strengthens after comments by finance ministry official
By Swati Bhat
MUMBAI, Sept 12 (Reuters) - The Indian rupee staged a sharp
recovery on Wednesday, following talk of possible fiscal and
monetary steps to stabilise the currency and comments from a
government official that the slide was overdone.
Despite strong GDP growth, the rupee has weakened more than
11 percent to become Asia's worst performing currency this year,
hit by higher oil prices and an emerging markets sell-off,
widening India's current account deficit and tipping its balance
of payments into the red.
There was no fundamental rationale for the rupee to
depreciate to the low levels of the previous session, Subhash
Garg, the economic affairs secretary, wrote on social network
"It (rupee fall) reflected overreaction of market operators.
Government and RBI will do everything to ensure that rupee does
not slide to unreasonable levels. Today's correction seems to
reflect that realisation."
The comments further propped up the currency as intermittent
dollar sales by the Reserve Bank of India through state-run
banks continued to underpin sentiment, dealers said.
The currency had touched a record low of 72.92 per dollar
before it gained as much as 1.4 percent to stand at 71.90.
The partially convertible rupee ended the session
at 72.1950 per dollar, up 0.7 percent from a previous close of
72.7075, for its biggest single-day rise since May 25.
India's benchmark bond yield ended at 8.13
percent, down 5 basis points on the day and retreating from the
day's high of 8.23 percent, its highest since Nov. 14, 2014.
"There has been talk of a rate hike since yesterday," said a
senior trader at a private bank.
"The comments today have given some hope to the market that
the RBI may do something, but the broader trend for the rupee
continues to be downward."
Prime Minister Narendra Modi will review the economic
situation on the weekend, Newsrise said, citing an official.
Fiscal and monetary measures cannot be ruled out after the
review meeting, nor a rate hike by the central bank, television
channels said, prompting a recovery in the currency from record
Traders await August inflation data due later on Wednesday,
which is expected to undershoot the central bank's medium-term
Markets will be closed on Thursday for a religious festival.
Most analysts have said the rupee's fall has largely been
driven by global factors and is in line with fundamentals, but
political considerations ahead of general elections in 2019
could prompt action from authorities.
"A weaker rupee is a function of global factors rather than
idiosyncratic factors," foreign exchange analysts at Nomura
wrote in a note.
"From that perspective, an aggressive stance on monetary
policy may prove counter-productive to growth dynamics and may
end up hurting growth-sensitive flows."
(Reporting by Swati Bhat
Editing by Euan Rocha and Clarence Fernandez)
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