Re weakens on political turmoil

The rupee bounced off a near three-week low touched in early trade on Tuesday after a disappointing RBI policy statement and as DMK withdrew support from the ruling coalition UPA government.

The withdrawal of support is seen jeopardising Prime Minister Manmohan Singh's economic reforms but poses no immediate threat to the minority government, which can survive with the support of other parties.

The RBI cut its key lending rate as expected, spurring a brief rally in markets, but warned that scope for further easing was limited, prompting markets to soon start reversing the gains.

"Political stability is the new concern now. The market was caught short following the rate cut decision, and hence the USD/INR spiked up,"  a senior foreign exchange dealer with state-run Andhra Bank, Vikas Babu Chittiprolu,said.

"Going ahead we may see a range of 53.90 to 54.60 on the USD/INR this week. Unless some new event crops up in the euro zone, I expect the USD to be capped at 54.60 on the top," he added.

The partially convertible rupee closed at 54.37/38 per dollar, weaker compared with its close of 54.1650/1750 on Monday. The rupee strengthened to as much as 53.9050 in early trade, its highest since February 28.

"The rupee looks weak in the short-term now. We could see 55 levels depending on the developing political scenario and the pace at which it evolves," said Ashtosh Raina, head of foreign exchange trading at HDFC Bank.

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