Ending weaker at the start of the week, the rupee ended 35 paise lower at 61.79 against the dollar on Monday due to weak equity markets and demand for the American currency.

The domestic unit shed 13 paise to 61.57 per dollar in the opening trade against the previous close of 61.44.

After touching 61.52 in the early trades, it declined to 62 per dollar during the day on renewed dollar demand from banks and importers and Bombay Stock Exchange- benchmark Sensex falling over 200 points.

Further, with the continued US shutdown since last week, investors stayed away from major currency markets. Agency reports said the dollar traded near an eight-month low against a basket of currencies.

RBI measures to help rupee

The Indian currency is likely to strengthen on Tuesday as the Reserve Bank of India’s liquidity easing measures is likely to bring some breather on the cost of borrowing by banks.

The RBI on Monday eased the interest rate on borrowings under the marginal standing facility (MSF) by 50 basis points to 9 per cent. In July, the MSF rate was tightened by the RBI raising it by 200 basis points, making borrowing costlier for banks.

“The move is definitely a positive one. We should see the rupee appreciating to 60.50 levels by the end of this week,” said Hariprasad M P, Head – Treasury, Centrum Direct Ltd.

Dollar outflows

Moreover, the US shutdown is likely to further delay the US Fed’s tapering plan of its $85-billion monthly monetary stimulus. This is expected to restrict the dollar outflows from emerging markets such as India.

Call rates, G-Secs

The inter-bank call money rate, the rate at which banks borrow from each other to meet their short-term fund requirements, closed higher at 9.45 per cent against the previous close of 9 per cent.

The 7.16 per cent government security, which matures in 2023, ended weaker at Rs 90.19 from Friday’s close of Rs 90.61. The yields hardened to 8.68 per cent from 8.61 per cent.

In addition to the above measures, the RBI also infused liquidity into the system by purchasing government securities worth Rs 9,974 crore. This is likely to strengthen the bond markets and yields are likely to soften on Tuesday. This will help banks make some treasury gains.

Beena.parmar@thehindu.co.in

(This article was published on October 5, 2013)
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