The rupee resumed its downward journey on Friday after staging a big pullback in the previous session, as domestic stocks declined and the euro traded near a 22-month low. The US dollar gained against other major currency rivals.
At 10:43 am (IST), the local currency was traded at 55.7725 per dollar after being as low as 56.0850 and as high as 55.75. It had opened at 56.00 versus the previous close of 55.6550.
The RBI is likely to have sold dollars in spot markets via public sector banks to prevent the rupee from falling beyond the psychologically key level of 56 per dollar, according to reports.
Besides selling of dollars by some public sector banks and exporters, a rebound in the local stocks and steps taken by the RBI helped the rupee recover from an all-time low on Thursday. The RBI may have also intervened by selling dollars through state-run banks.
The RBI will take the required steps, consistent with its policy, to curb swings in the rupee, Subbarao said.
“We have taken action to improve the current flows, encourage inflows and also to curb speculation,” Subbarao told reporters yesterday in Mussoorie. “We will do whatever is necessary, consistent with our policy.”
“The rupee movement is a function of the external situation as well as developments in the current account and capital account of the balance of payments,” Subbarao said. “Some structural changes are necessary for an improvement in the current account.”
Subbarao, who spoke after attending a board meeting of the central bank, said that the RBI was continuously monitoring the exchange rate. India isn’t contemplating selling sovereign bonds abroad, he said.
Subbarao said that the central bank won’t rule out the possibility of selling dollars directly to oil refiners.
Meanwhile, economists at Goldman Sachs and Bank of America-Merrill Lynch have joined Morgan Stanley in scaling back their GDP growth forecasts for India.
Goldman Sachs said it was cutting its GDP forecast to 6.6% from 7.2% for the fiscal year ending in March 2013, citing a weaker investment outlook on the back of domestic policy uncertainties.
The Wall Street investment bank also revised higher its wholesale price inflation (WPI) forecast for FY13 to 6.5% from 5%, citing higher food prices and a potential increase in fuel prices. Goldman now expects only 50 basis points in additional rate cuts for calendar year 2012, from its previous forecast of 75 bps.
Merrill Lynch also downgraded its GDP view for India, to 6.5% from 6.8% previously for FY13, though it cited the fallout from the eurozone crisis as its main rationale. "We continue to believe that the worst is over, but there is still pain left," Merrill said.
Morgan Stanley's earlier this week cut its FY13 growth forecast for India to 6.3%, citing as a key reason the Government's expansionary policy of supporting consumption while investment slows.
In global action today, the euro was headed for its biggest weekly decline this year amid signs that Europe’s debt crisis is hurting growth. The 17-nation euro has fallen versus all but one of its 16 major counterparts since May 18.
Europe’s shared currency is set for a 1.9% drop against the dollar this week, the biggest since the period ended Dec. 16. It is down 1% versus the yen. The euro has lost 4.9% in the past 12 months.
The yen slid versus the dollar as Japan’s consumer-price gains remained far from the central bank’s target.
The Dollar Index rose to a 20-month high as investors sought the relative safety of the US currency.
The Dollar Index, which tracks the greenback against six major currencies, climbed to as high as 82.411, the strongest level since Sept. 2010.
The Australian and New Zealand dollars were set to complete four weeks of declines against their US counterpart.
Gold tracked the euro lower and was on track to its weakest monthly performance since December, pushed down by fears the debt crisis in Europe could spiral out of control and trigger a global economic slowdown.