Rupee recovers from all-time low, regains 18 paise

The rupee closed at 68.65/66 per US dollar on Wednesday

The rupee closed at 68.65/66 per US dollar on Wednesday

State-owned banks are probably selling dollars and buying rupees on behalf of the central bank, two traders from local lenders said Thursday, citing price action.

A one rupee coin is seen in this picture illustration taken in Mumbai April 30, 2012. Though the currency has recovered from this low, it is likely to remain under pressure and fall to fresh lows in the coming days. This in turn has dragged the rupee from its level of 67.83 on Friday to a record low of 69.09 today. The rupee hit a life low of 69.0950 earlier in the session.

The rupee on Wednesday closed at 68.61 against the U.S. dollar.

The RBI, in its Financial Stability Report, observed that increased domestic demand, along with a worsening of the terms of trade, particularly due to rising oil prices, may impact the current account, although robust global growth is likely to boost India's exports. It has weakened by over 8 percent for the year 2018.

A senior Indian finance ministry official, who declined to be identified as he is not authorised to speak to media, said the government and the central bank were closely monitoring and there was no need to panic.

"India's significant build-up of foreign exchange reserves in recent years to all-time highs provides a support buffer to help mitigate external vulnerability risk", said the agency. The withdrawals have made the rupee the worst-performing currency in Asia, spurring analysts to put out bearish forecasts.

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"Weakening at this pace shatters confidence". Earlier this year, the Reserve Bank of India increased corporate-bond investment limits and relaxed rules for foreign owners of government bonds.

The immediate challenge before the Reserve Bank of India (RBI) is to shore up the falling rupee.

Asia's third-largest economy is battling inflation and a widening current account deficit stoked by high oil prices.

Oil has gained this week as the USA puts pressure on its allies to halt purchases of Iranian supplies. The erosion in rupee's value has reportedly adversely impacted the bond market - the 10-year benchmark bond yield shot-up to 7.87 per cent from 7.83 per cent on Wednesday.

Shares of software service exporters such as Infosys rose 1.6 percent, while textile exporters such as Arvind Ltd gained 0.7 percent. The rising trend of Brent crude, beginning a year ago, has widened the current and fiscal accounts putting vast pressure on the rupee.

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