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Rupee faces stiff resistance at 58.50 – 58/$; RBI policy eyed

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By Manisha Gupta, Editor -Currency and Commodities

MUMBAI: The Reserve Bank of India’s (RBI) continuous efforts to stem the rupee fall seems to paying off as the Indian unit is not only is off its all-time low of 61.21 but has turned around to trade at more than a one-month high today.

The Rupee is perhaps the only gainer in the emerging market today. Most of the other currencies are down as the US home sales, which rose to 5-month high for month of June, increased demand for the greenback. The China manufacturing PMI which droped to 11-month have low put pressure on other global currencies.

The India regulator in the last two months has come out with various measures to stop the rupee from sliding. It recently tightened liquidity to contain speculation and volatility in the forex market.

Its latest measure came as a shocker for the markets. The RBI reduced the liquidity adjustment facility from 1 per cent of total deposits to 0.5 per cent. It also advised banks to maintain average CRR of 99 per cent against earlier 70 per cent. In addition to this, the RBI also put on auction cash management bills.

Last week, the central bank raised the short term interest rates by 200 basis points. There have been curbs on currency futures and options through curtailment of open interest and position limits and by increasing margins for members including banks.

To improve the sentiment and also to contain the current account deficit numbers, the RBI has put curbs on gold imports by making it mandatory to export 20 per cent of all import lots brought into the country. The regulator has been prepping the currency by interventions in the forex market as well.

The RBI has been trying to defend the 60 mark but at the expense of growth. The borrowing costs for the banks and the corporates have gone high. The bonds have fallen to the lowest in more than a year. The FII outflows from debt have increased, raising concerns of the investment scenario.

The industry is not ruling out more measures like sovereign bonds and hike in NRI deposit rates as further measures. It that with the elections scheduled next year, the government is likely to take a lot of short term measures. These measures do not bode well for long term sustainable growth.

High inflation and CAD numbers in the back home and uncertainty on US Federal Reserve’s rollback of stimulus program continue to weigh sentiment.

The market is also worried that strong demand for the dollar and inflation would put more pressure on the rupee.

The rupee at the moment is enjoying undivided attention of the RBI. It may make some more gains but may find stiff resistance at 58.50 – 58 levels unless there are more shocks coming in from the regulator.

Till then it’s the RBI policy meet on July, 30 which is the next big event on the cards.
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