New Delhi: Indian public sector banks sold dollars in the foreign exchange market, after the rupee fell below 53 per US dollar Wednesday, touching a four-month low against the greenback, but a rumoured intervention by the Reserve Bank of India helped the local currency recover some of the losses, the Reuters reported citing four unidentified dealers familiar with the development.
The Indian currency was kept under pressure through most of the trading session Wednesday, following the continued demand for US dollars by oil importers, the unidentified dealers told the news agency, while other emerging market currencies were gaining.
The rupee jumped back and was trading at 52.91 per US dollar at 3.02 pm, after falling to as low as 53.02 against the dollar on Wednesday.
Moreover, a UK bank was also said to have sold around $100-150 million for a software company, the unidentified dealers said.
However, despite the rumoured intervention by the central bank on Wednesday, the RBI will not be able to take a decisive step if the rupee continues to fall further, the dealers said.
According to the dealers, RBI selling dollars is only likely to further aggravate the severe liquidity crunch in the banking system, as reflected by the average bank borrowings from the RBI under the daily LAF (liquidity adjustment facility) window which crossed a record Rs 1 trillion mark for six days in a row.
The RBI has been intervening in the foreign exchange market occasionally to arrest the sharp fall in the rupee, which touched a record low of 54.32 per US dollar on December 15, 2011, and registered a drop of over 16% in 2011.
In December, the RBI introduced several measures to boost dollar supply and limit the fall in rupee's value, including reduction in net overnight open position limits of banks and withdrawal of the facility for local residents and foreign investors to re-book forward contracts after canceling them.
Notably, the government has also raised limit on foreign institutional investors' (FIIs) holding in Indian sovereign and corporate bonds by $5 billion each in a move to allow and attract higher capital inflows into domestic debt market.
Rupee has been one of Asia's worst-performing currencies against the dollar amid constantly high crude oil prices, escalating Euro zone debt worries and investors' preference to hold US dollars due to global uncertainties.
Recently, India and Japan signed a $15 billion currency swap arrangement, under which, Japan will provide US dollars to India as and when needed, to help the south Asian nation arrest the alarming depreciation in rupee.