By Swati Bhat
MUMBAI (Reuters) -The Indian rupee snapped a seven-session falling streak on Tuesday as central bank intervention and gains in domestic shares helped drive a recovery after the currency breached the 80 per dollar mark earlier in the day, dealers said.
Traders said the central bank sold dollars through state-run banks intermittently through the session, as has been the case in recent weeks.
Like most Asian currencies, the rupee has been falling in recent months as expectations of aggressive U.S. Federal Reserve policy tightening to curb stubborn inflation prompt investors to dump riskier assets.
The dollar hovered just above a one-week low on falling odds of a full percentage-point Fed rate hike this month.
The partially convertible rupee ended stronger on the day at 79.94/95 per dollar, compared with its close of 79.97 on Monday. It dropped to a record low of 80.0650 earlier in the session, a seventh straight life low.
“The rupee is going to weaken further, that is a given. But how soon and how much will depend on the RBI (Reserve Bank of India),” a senior trader at a private bank said.
The RBI has been intervening in both the spot and the forwards markets to slow the rupee’s fall, taking several measures in recent weeks to boost foreign fund inflows.
Earlier this month, the RBI said it would allow overseas investors to buy short-term corporate debt and opened up more government securities under the fully accessible route, among various other steps.
It has more recently also allowed importers and exporters to be paid in rupees to help bring down the need for foreign currencies.
But traders said the rupee was being hurt by a severe dollar shortage and expectations that India’s current and trade account deficits will continue to widen.
While a recovery in Indian share markets on Tuesday helped stabilise the rupee, traders warned the respite could be temporary.
“The rupee depreciation will firm up margins for the IT companies in the near term,” said Tanushree Banerjee, co-head, research at Equitymaster.
“Having said that, due to higher employee and travel costs, the margin upside may be limited. Also, over time the dollar contracts could get renegotiated and margins could get normalized.”
So far in 2022, foreign investors have made net sales of India shares totalling more than $30 billion, and traders said unless this trend reverses, the downward bias on the rupee would continue.
India’s benchmark 10-year bond yield ended little changed at 7.43%, compared to previous close of 7.44%. [US/]
(Additional Reporting by Sethuraman N R; Editing by Himani Sarkar, Simon Cameron-Moore, Rashmi Aich and Aditya Soni)
