Rupee weakens to 2-month low against US dollar; RBI likely to intervene

The local unit opened 11 paise lower at 82.71 to the dollar, extending its decline from its previous close of 82.60.

“There is no intervention by the Reserve Bank of India (RBI) so far to curb the losses in the rupee,” said an economist with a private sector bank.

“The importers’ demand for the dollar is also very high, while there are no immediate reasons for the rupee to appreciate,” she added, expecting that the rupee may hit the levels of 83 a dollar going ahead.

The US currency appreciated on the back of hawkish Fed and optimism over debt ceiling talks in the US.

Two Federal Reserve policymakers had said that US inflation does not look like it is cooling fast enough to allow the central bank to pause its tightening campaign. More analysts are now expecting that the US Fed could raise rates by another 25 basis points next month.

“Once again FOMC members rejected the case of a rate cut at an upcoming Fed meet since the inflation is far away from the Fed’s comfort zone. Infact, there are some signs that the Fed may have to raise rates again,” said Jigar Trivedi, Senior Analyst, Reliance Securities.

Trivedi expects levels around 83.00 – 83.10 would be hurdle levels for USD/INR where RBI may intervene.

“However, if the DXY experiences the profit booking, the USD/INR may drop to 82.50,” he added.

The rupee has weakened by around 0.7% this week against the greenback. The local currency had climbed near 81.60 per dollar in late April. This rally in the rupee was used by the RBI to prop up its reserves and buy dollars, analysts said, swelling India’s foreign exchange reserves to an 11-month of $596 billion in the week ending May 5, as per RBI data.

However, the recent uptrend in dollar would likely prompt the central bank to intervene and protect the rupee from depreciating further.

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