Reports of an economic review meeting to be chaired by the prime minister over the weekend helped the rupee make a dramatic recovery during the end of the trading hours on Wednesday, closing the session at 72.19 against the dollar.
In addition, a strong intervention by the central bank and exporters selling dollars helped the rupee to appreciate, said dealers.
The currency touched a record low of 72.92 per dollar before it gained as much as 1.4 per cent to stand at 71.90. The partially convertible rupee ended the session at 72.19 per dollar. With this, the rupee has posted its biggest single-session rise against the dollar since May 25.
Traders said the sentiment got a boost after reports that PM would hold a meeting to discuss the current economic scenario and to assess measures to stem the fall in rupee's value over the weekend.
The government is also expected to announce measures to check the rise in oil prices, traders further said.
Anindya Banerjee, currency analyst at Kotak Securities said, “The rupee recovered after comments from the ministry of finance officials about a possible meeting at the PMO over the steps to tackle rupee depreciation. Dollar rupee declined from 72.91 to 71.91 in a short span of time. The central bank may have intervened in the market as well to sell dollars. Over the near term, volatility will be high as interventions from the RBI and the government is offset by weakness in emerging market currencies and rising oil prices. A range of 71.50 to 73.50 is expected.”
Madhavi Arora, economist at Edelweiss Securities said, “The rupee saw a dramatic turn in the last one hour, reacting to the news flow that the government will review the health of the economy during the weekend, with focus on the Rupee. Media sources also say that government has stated it is not ruling out interest rate hike by the RBI. While it is difficult to really decipher a statement by government official on a monetary policy decision (that falls purely in the purview of the MPC), it does raise the case for a policy rate hike, albeit still on the scheduled October 5 MPC policy.”
“We still do not think a pre-emptive rate hike over the weekend is warranted at this point and the policy makers can explore other tools as well… rupee’s effective reaction beyond the knee-jerk today will depend on the severity of measures adopted by the policymakers. We continue to maintain the Dollar-rupee range at 69-74 for remainder of FY19 but will closely watch out for the policy space,” added Arora.
India’s benchmark bond yield ended at 8.13 per cent, down 5 basis points on the day and retreating from the day’s high of 8.23 percent, its highest since November 14, 2014. The rupee has lost almost 4 per cent its value in last 10 days of incessant depreciation and nearly 12 per cent since January making it one of the worst performing Asian currencies on account of higher oil prices, an emerging markets sell-off and widening India’s current account deficit.