The rupee closed at Rs. 130.10/30 against the greenback from an opening position of Rs. 130.10/20.
Currency dealers are uncertain over the exchange rate movement and interest rates, with the Central Bank expected to release its monetary policy review next week.
"It is still too early to say whether or not the policy changes are having the desired affect. If inflation and private sector credit growth remains a concern, we could then expect an increase in policy interest rates in the short term. But the policy changes are bound to have an impact sooner or later and we feel the exchange rate and interest rates could ease later this year," one currency dealer said.
However, some dealers note that certain banks maintain excess liquidity positions which could fuel credit growth further.
"There is an 18 percent cap on credit growth but if this level is reached sooner then we could still have a problem with the balance of payments if new loans are financing imports. It is only after the 18 percent cap has been reached that a bank would slow down. So perhaps in the short term we could expect interest rates to move upwards, if imports are still not brought under control," another dealer said.
The Central Bank and Treasury have said the exchange rate would stabilise around Rs. 125 to a dollar, with Treasury Secretary Dr. P. B. Jayasundera going further by saying (as reported earlier in these pages) the government would intervene if speculation continued to drive the exchange rate upwards, as there was no basis for the rupee to depreciate the way it did.
However, currency dealers said the market was too small to be influenced by speculation.