MIXED sentiments were observed in the local currency market last week. Against the dollar, the rupee traded almost stable on the interbank market but came under renewed demand pressure in the open market.

Citing continued decline in foreign exchange reserves owing to heavy debt repayments and facing twin deficit crisis, the central bank raised its key interest rate by 50 basis points to 6.5 per cent for the next two months.

Last week in the interbank, the rupee on Monday lost three paisa on the buying counter and two paisa on the selling counter, trading against the dollar at Rs115.61 and Rs115.62, slightly lower than the last closing at Rs115.58 and Rs115.60.

In the following four sessions, the rupee showed no change and traded flat at Rs115.61 and Rs115.62 on insignificant demand. Due to normal dollar demand from importers in the week, the rupee remained stable against the dollar in the interbank, closing the week flat at Rs115.61 and Rs115.62.

On week-on-week basis the euro gained 55 paisa against the rupee

However, the dollar managed to appreciate up to three paisa on the interbank market on a week-on-week basis.

In the open market, however, the rupee was under renewed pressure against the dollar. The rupee commenced the week on a negative note due to surge in foreign exchange demand.

Extending weekend losses, it lost 10 paisa against the dollar on Monday with the dollar climbing to Rs117.20 and Rs117.70 from the last closing level at Rs117.10 and Rs117.60. Continuing its downslide, the rupee on Tuesday slipped to Rs117.30 and Rs117.80 after posting another 10 paisa loss against the dollar.

On Wednesday, the rupee lost 50 paisa due to insignificant dollar supplies, enabling the dollar to climb to Rs117.80 and Rs118.30. The dollar remained firm on Thursday when it surged to its highest level in five weeks, trading at Rs118.20 and Rs118.70 after the rupee shed 40 paisa.

Consequently, the gap between the interbank and open market rate widened to Rs2.84 last week from Rs1.74 in the previous week.

On Friday, the dollar ended flat as the rupee retained its overnight rates unchanged at Rs118.20 and Rs118.70. During the week, the dollar in the open market gained Rs1.10 against the rupee on a weekly basis.

Against euro, extending weekend weakness and trading range-bound, the rupee commenced the week losing 10 paisa on Monday, changing hands against euro at Rs137.80 and Rs139.30 against the prior weekend levels of Rs137.70 and Rs139.20.

The rupee downtrend persisted on Tuesday, losing 70 paisa at Rs138.50 and Rs140.00.

On Friday, the rupee recovered 25 paisa, pushing the euro lower at Rs138.25 and Rs139.75 at the close of the week. On week-on-week basis the euro gained 55 paisa against the rupee.

Published in Dawn, The Business and Finance Weekly, May 28th, 2018