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Rupee logs first monthly fall since December as RBI steps up dollar purchases

LiveMint logoLiveMint 31-05-2017 Alekh Archana

Mumbai: The Indian rupee closed May with its first monthly decline since December as the Reserve Bank of India (RBI) stepped up purchase of dollars.

In May, the local currency fell 0.41% after sliding 2.4% in November.

On Wednesday, the rupee closed at 64.51, up 0.24% from its previous close of 64.67.

“In May, despite stronger inflows, the appreciating in the rupee trend deviated because of aggressive intervention by RBI,” said Rohan Lasrado, head of forex at RBL Bank Ltd.

The country’s forex reserves hit a record high of $379.31 billion as on 19 May.

So far this year, the rupee has gained 5%, while foreign investors bought $7.75 billion and $10.34 billion in the local equity and debt markets, respectively.

Foreign exchange dealers said that since the 8 November demonetization, liquidity in the banking system surged, restricting the central bank’s ability to intervene in the market to arrest exchange rate appreciation.

When RBI purchases dollars, fresh rupee liquidity is infused in the system.

Even though the banking system liquidity is plentiful, the surplus narrowed partly because RBI sucked out Rs1 trillion by selling treasury bills under the so-called Market Stabilisation Scheme in four auctions held between 17 April and 8 May.

Average surplus liquidity in the banking system in May was around Rs3.4 trillion, compared with an average of Rs4.2 trillion in April, according to a Kotak Mahindra Bank research report.

Foreign exchange dealers said that apart from dollar purchase by the central bank, the Indian rupee fell in May also because of uncertainty surrounding global events such as elections in the UK, geopolitical tensions between the US and North Korea, and the June monetary policy meeting of the US Federal Reserve.

The fall in the rupee has not benefited exporters in a big way because it has been marginal, said a foreign exchange dealer with a large IT company on condition of anonymity.

Going ahead, the rupee is likely to climb because of an expected surge of foreign inflows to Indian financial markets.

According to Lasrado of RBL Bank, rupee is expected to hover around 64.20-65.00 as RBI has been protecting the lower levels.

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