The rupee closed at Rs. 128.55/60 against the greenback after trading at an intraday day high of Rs. 128.80 after opening on Rs. 128.50/70. "We saw a state bank selling dollars to selected banks which kept the exchange rate somewhat stable. Usually state banks are used by the monetary authority to intervene in the market.
Currency dealers said the rupee could reach a low of Rs. 129 against the US dollar depending on the recovery of the US economy. "But we do not see the dollar weakening below Rs. 127," a currency dealer said.
Factoring in the sluggish export performance and high foreign debt, avoiding a shock such as a balance of payments, could see the rupee reach above Rs. 134 against the US dollar if intervention is absent. Likewise, if the Central Bank cuts consumer spending by markedly reducing its Treasury bill holdings, which reflects money printed for the government in the system, the rupee could strengthen to as much as Rs. 120, some dealers in the market believe.
The trade deficit contracted by 23.4 percent to US$ 2,128.9 million during the first three months of this year from US$ 2,779.1 million a year earlier with export earnings continuing to decline, falling 8.1 percent from a year ago to US$ 2,363.2 million although imports fell more sharply at 16 percent to US$ 4,492 million.
Debt heavy gross official reserves grew by US$ 19 million to US$ 6,689 million as at end March 2013 from US$ 6,670 million a month earlier, with government borrowings surging at 49 percent, Central Bank data showed.
End March reserves had grown by US$ 12 million since reaching US$ 6,877 million as at end December 2012.
As at end December 2012, debt and short term inflows amount to 95 percent of reserves. Total government borrowing alone, at US$ 5,256.9 million, amounted to around 76.44 percent of reserves.