The Indian rupee gained on Wednesday after recovering from a near-record low hit earlier in session, as policy makers pledged renewed efforts to defend the currency, while traders also cited central bank intervention. The rupee has slumped 1.7 percent for the month, its third successive month of losses, even after the Reserve Bank of India unveiled steps to defend the currency by draining cash, as the efficacy of the moves were put into question by doubts about the central bank's resolve.
RBI Governor Duvvuri Subbarao dispelled some of those doubts on Wednesday, saying the central bank would stick to its defence of the rupee until exchange rates stabilise, and easing uncertainty just a day earlier after his remarks about a potential rollback of cash-draining steps led the rupee to fall 1.8 percent.
Meanwhile, Finance Minister Palaniappan Chidambaram suggested the government was considering options, including bringing in more foreign inflows, in a bid to narrow a record high current account deficit which has been a key factor in the rupee's weakness.
Analysts also said the rupee appeared oversold, although much will depend on the outcome of the U.S. Federal Reserve's two-day meeting later in the day when markets expect more cues about its monetary stimulus programme. "The Finance Minister's statements on $80 billion inflows likely this fiscal year has helped the rupee. I think the rupee is oversold and a pullback to 59 levels is not ruled out," said Satyajit Kanjilal, chief executive at ForexServe. The partially convertible rupee closed at 60.40/41 per dollar compared with 60.47/48 on Tuesday. It fell to 61.17 in session, within a whisker of its life low of 61.21 seen on July 8.
The one-month offshore NDF rate was at 60.93 when local markets closed, a premium of about 53 points over onshore spot, sharply higher than the 15-20 points average. The rupee has been among the worst hit this year among emerging market currencies due to concerns about a current account deficit that hit a record high of 4.8 percent of gross domestic product in the previous fiscal year. Besides the comments from Subbarao and Chidambaram, traders cited dollar sales from the central bank on two occasions to prop up the rupee.
Foreign banks also sold dollars ahead of the conclusion of the Fed's two-day meeting. In the offshore non-deliverable forwards, the one-month contract was at 60.98, while the three-month was at 61.89. In the currency futures market, the most-traded