Rupee Devalue


The rupee is now the Rs 76/$ stage and the next testing point will be 77, which is expected soon. The reason for this is more on the global side with the dollar strengthening and other currencies weakening. The Dollar – euro relation has moved in favour of the former at $ 1.07/euro which is casting shadow on other currencies. This is notwithstanding the fact that the US economy has also been afflicted with the virus quite sharply which will have bearing on growth prospects.The RBI response has been on the side of fundamentals to provide dollars to banks through a swap. The auction of yesterday was for $ 2 bn for 6 months where the dollars were to paid back to the central bank on Sept 25th. Interestingly the bid was for only $ 1.53 bn and the bids accepted were for $ 0.65 bn. The cutoff premium was 196 paise and the weighted average cutoff was 188.50 paise. On an annualized basis this would be close to 5% premium. Quite clearly the market was not too interested and supply of dollars will not be the main concern amidst this volatility. The FPIs will hold a clue because as they keep selling and the markets become nervous, the rupee will tend to decline, which is what is happening. With these developments, the fundamentals have ceased to matter and sentiment is going to drive the currency. Sale of dollars directly by the RBI can help but only temporarily for a day or two before it will be back to a volatile market. We can expect the rupee to move towards the $ 77/$ mark in the next few sessions.