Rupee weakens to over four-month low on importers' US dollar demand

Business Standard

3 days ago

The rupee weakened to a more than four-month low on Tuesday, weighed down by strong dollar demand from importers ahead of month-end payment obligations. Dollar purchases by state-owned banks further pressured the local currency, said dealers. Sentiment was also dampened by uncertainty over the outcome of US–India trade negotiations, with the approaching 1 August deadline adding to investor caution. The rupee settled at 86.82 per dollar, its lowest level since 13 March this year, when the domestic currency had breached the 87-per-dollar mark. On Monday, the rupee had settled at 86.67 per dollar. 'There was importer demand for dollars. Some PSU banks were also buying,' said a dealer at a private bank. 'The sentiment has been down for the past two weeks now because of uncertainty around trade deals with the US,' he added. The rupee has depreciated by 1.37 per cent so far in the current month, and 3.74 per cent against the greenback in the calendar year to date. 'Foreign portfolio outflows put pressure on the rupee. There is resistance seen at 86.90 per dollar, with the RBI containing the excess volatility,' said the treasury head at a private bank. Meanwhile, the Reserve Bank of India (RBI) received bids worth Rs 46,058 crore against a notified amount of Rs 50,000 crore at the three-day Variable Rate Reverse Repo (VRRR) auction. The central bank accepted the bid amount at a cut-off rate of 5.49 per cent. 'The amount of bids was on expected lines,' said a dealer at a state-owned bank. 'The amount was lower compared to previous auctions; hence, it was almost absorbed,' he added. In the money markets, the weighted average overnight call rate—the operating target of monetary policy—rose to 5.38 per cent from the previous day's 5.35 per cent. The overnight triparty repo (TREPS) rate settled at 5.30 per cent, against 5.26 per cent on Monday. Net liquidity in the banking system stood in surplus at Rs 2.23 trillion on Monday, according to the latest RBI data. 'The aim is to keep rates between the SDF and the repo rate. The overnight TREPS rate was again trading near the SDF. To avoid further decline, the RBI came up with the small VRRR auction, like they did with the VRR when the rates moved beyond the MSF,' said a dealer at a primary dealership. The RBI had conducted two Variable Rate Repo (VRR) auctions in the past week after overnight money market rates rose beyond the repo rate. The RBI's VRR auctions led to a decline in these rates, which had been trading above the MSF rate of 5.75 per cent. The marginal standing facility (MSF) rate, set 25 basis points above the policy repo rate, acts as the ceiling of the liquidity adjustment facility (LAF) corridor. The standing deposit facility (SDF), 25 basis points below the repo rate, is the floor. The policy repo rate is currently at 5.5 per cent.