The rupee wiped off early losses to close 41 paise stronger at 63.31 against the dollar on Wednesday after the RBI Governor calmed the worried markets by stating that it would not rush to roll back dollar swap window for oil companies.

On Wednesday, the domestic unit fell to a more than a two-month low of 63.88 against the American dollar in its opening trade citing heavy dollar demand from oil companies and banks. The unit had closed weaker at 63.72 on Tuesday.

RBI Governor Raghuram Rajan, who called a sudden press conference on Wednesday, informed that the central bank has now routed back majority of the dollar demand from oil companies to the market.

After the sharp rupee depreciation in the months of July and August, the RBI decided to supply dollars to the oil companies to meet their dollar requirements. This helped the bring appreciation in the rupee. However, the currency market had started panicking after a finance ministry official confirmed last week that about 30-40 per cent of oil companies were buying dollars in the market. Since then, the rupee has declined to over two-month low.

Rajan’s comfort to the market on the decision to not rush the process of withdrawing the dollar swap window and that there were various options for the oil companies to repay the dollars to the central bank helped the rupee. Further, amid FII heavy outflows, the RBI chief said India can still break even on capital flows boosted the rupee sentiments.

In addition, in response to the much talked about reports of US starting to withdraw its fiscal stimulus earlier than expected, Rajan said India is better prepared to face the tapering now.

Such positive statements strengthened the rupee to 63.29 towards the end of the trading session.

Call rates, G-secs

The overnight call money rate, the rate at which banks borrow short-term funds from each other, ended weaker at 8.60 per cent from the previous close of 8.70 per cent.

The Rajan effect also helped the bond markets. The yields on the 10-year benchmark 7.16 per cent 2023 government bond softened to 8.91 per cent from the previous close of 9.05 per cent. Bond prices closed sharply stronger at Rs 88.88 from Rs 87.70.

beena.parmar@thehindu.co.in

(This article was published on November 13, 2013)
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