MUMBAI: The Indian rupee hit a record low of 61.80 on Tuesday but recovered after the central bank intervened and the appointment of Raghuram Rajan as the new central bank governor raised hopes of a new approach to currency management.
Dealers said heavy dollar demand from importers throughout the day had pressured the rupee before the Reserve Bank of India's intervention helped it recover and post a 0.2 percent gain for the day.
Media reports the government was gearing up to announce new measures to attract foreign inflows, including potentially raising debt via state-run companies and banks, also helped the rupee recover.
New measures could reduce the pressure somewhat on the Reserve Bank of India to announce new cash-draining measures to prop up the rupee, just as India has announced chief economic adviser Raghuram Rajan would lead the central bank when Duvvuri Subbarao's tenure as governor ends in September.
"Rajan's appointment is positive news. But I am not expecting any major shift in RBI policy given the constraints it has to face on macro and micro levels," said Pramod Patil, assistant vice president, forex and money markets at United Overseas Bank.
"Even though there was good dollar selling by state-run banks today, I feel the rupee will test 62 levels towards the weekend unless RBI takes some concrete action," he added.
The partially convertible rupee closed at 60.77/78 per dollar compared with 60.88/89 on Monday. The unit moved in a wide band of 60.75 to 61.80 during the session.
Traders said good arbitrage opportunities between the onshore and offshore forward markets were also a reason for the rupee's fall.
The rupee has fallen 1.5 percent since the RBI unveiled measures to drain cash on July 15, raising doubts about the efficacy of the measures, especially as increased government spending has kept liquidity easy and not tight.
Analysts say the government would ultimately need to take meaningful steps to address the record high current account deficit and stem further declines in the rupee.
In the offshore non-deliverable forwards, the one-month contract was at 61.46 while the three-month was at 62.40.
In the currency futures market, the most-traded near-month dollar/rupee contracts on the National Stock Exchange, the MCX-SX and the United Stock Exchange all closed at around 61.47 with a total traded volume of $3.3 billion.
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