INDIA’S rupee recovered against the dollar in early trade on Friday (August 23), with investors reassured by comments from Finance Minister P Chidambaram and the central bank which lifted the currency off its historic lows, analysts said.
The rupee, one of the worst performing currencies in Asia, hit a new lifetime low of 65.56 on Thursday (August 22), but was trading at 64.34 to the dollar on Friday morning.
“There is a bit of steadiness in trade, volatility is lower,” said Param Sarma, chief executive with consultancy firm NSP Forex.
“The FM’s statements seem to have led to some calm. The rupee can’t just keep falling one way,” Sarma said.
The rupee has shed a fifth of its value this year, which Chidambaram said was “undervalued and overshot the reasonable and appropriate level”.
Chidambaram also said there was no plan to resort to more capital controls and that reviving growth, which has slumped to a decade low of five per cent in the year to March, would remain the focus of government.
Reserve Bank of India governor Duvvuri Subbarao on Thursday dismissed fears that the country was hurtling towards a balance of payments crisis similar to the one seen in 1991.
The RBI’s annual report for 2012-13, released on Thursday, said India’s foreign exchange reserve, “although lower than in the pre-crisis period, is adequate to finance about seven months of imports”.
Subbarao later said this was enough to manage the current situation.
The central bank and the government have been trying to stabilise the rupee for months by announcing measures such as hiking short-term interest rates and imposing limited capital controls.
Dealers have said they fear the rupee could weaken further – with Deutsche Bank analysts forecasting on Wednesday (August 21) that it could fall to 70 to the dollar.
Emerging market currencies have taken major hits recently as investors pull out money in anticipation the US Federal Reserve will begin to taper its stimulus effort, with India and Brazil also punished for slow growth.
