Rupee ends stronger against dollar on Tuesday

Rupee decreased to below the Rs 66 level against the dollar for the first time in nearly two years in opening trade today.

In the last five sessions foreign funds have sold $1.63 billion.

The People’s Bank of China announced on its website that it was reducing lending and deposit interest rates by 0.25 percentage points each and its reserve requirement ratio by 0.50 percentage points.

Heightened fears of a China-driven global economic crisis as well as worries of imminent Fed rate hike predominantly kept intense pressure on the domestic currency. That is also evident from the chart, which shows that the gap between the dollar and rupee price of the Indian crude basket was much wider then than it is now. The latest shocker, of course, has been the slowdown in China and the devaluation of the yuan which has had a ripple effect across the globe. Moody’s last week lowered its growth forecast to 7 percent, from 7.5 percent.

The rupee also hit a fresh two-year low of 66.47 to a dollar. But, the Indian rupee has somewhat managed to hold its own even as the currencies of Asian neighbours have gone into free fall against the dollar. “The ‘Black Monday” crash was caused by fears of a deep and long-lasting slowdown in the Chinese economy, the second largest in the world, which accounts for 15% of global GDP and half of all global growth. Market watchers said there was a fair amount of short covering and it was too early to tell whether the markets had priced in the uncertainty in China.

There is no clear indication of where exactly the rupee will gain upward lift, or how investor confidence will be restored in India’s currency. The Sensex and the Nifty staged smart recovery. Instead, most FIIs are still overweight India, he added.

Mundra said that the central bank does not target any level of the rupee to intervene to arrest its slide or gains. However, Mukherjee said that this is no reason to panic as FIIs usually exit emerging markets together.

“The continued sell-off in the US markets reflects the recent downward momentum for the markets which came amid overarching concerns about developing economies and the outlook for US interest rates“, Angel Broking said in a statement.

RBI deputy governor SS Mundra echoed Rajan’s statement that the Indian economy was better placed to withstand the impact from the Chinese market meltdown.

The rupee rebounded and stocks bounced back on Tuesday but the currency remained below the 66 mark to the dollar with the Reserve Bank of India (RBI) reportedly absent from the market.