The Reserve bank of India helped rupee rebound marginally on Wednesday, a day after falling to a more than two-year low, but the domestic currency is likely to remain under pressure as foreign capital stays in an exit mode.
The central bank pumped Rs 29815 crore into the money market in a bid to ease liquidity and prop up the rupee, which on Tuesday registered the sharpest single-day fall in 10 years and slipped close to 47 per US dollar.
On Wednesday, the rupee closed at 46.33 to a dollar, Analysts said heavy outflow of dollars in the last few weeks have accelerated the rupee’s fall. If the trend persists it would add to inflation, which is hovering over 12 per cent.
“It could push inflation up, particularly for import sensitive industries such as infrastructure and power,” said D K Joshi, principal economist with credit rating firm Crisil.
The rupee’s fall also partially offsets impact of easing crude prices.
Although RBI's intervention perked up the currency on Wednesday, it is not clear how long will it hold out. RBI Governor Duvvuri Subbarao has said that the central bank's exchange-rate policy has served it well so far and the policy to intervene to stem volatility will be continued.
Commerce and Industry Minister Kamal Nath said the government would “step in” if it finds “artificial” volatility in the currency market.
The rupee’s latest slide began around March but got larger in the past month.