The rupee, which was heading towards 73 a dollar, reaching the day’s low of 72.92, quickly retreated after the tweet.
Currency dealers say the RBI quickly intervened in the currency market. The dollar sales created some panic among the long position holders, who had to cut their holding. “It seems there were coordinated efforts by the RBI and the government. Stop losses were triggered at 72.50 level,” said Abhishek Goenka, Managing Director of IFA Global.
Rupee gained 0.71 per cent to close at 72.19 a dollar on Wednesday. It had closed at 72.70 a dollar on Tuesday.
There was “no fundamental rationale for rupee to depreciate to levels we saw till yesterday. It reflected overreaction of market operators,” Garg said in his tweet.
However, the later part of his tweet scared long-position holders. “Government and RBI will do everything to ensure that rupee does not slide to unreasonable levels. Today’s correction seems to reflect that realisation,” Garg said.
As rupee started correcting, and news
flash RBI rode the momentum chipped in with its dollar supply and the rupee strengthened back considerably. However, rupee remains the worst performing currency in Asia, falling 11.52 per cent year to date.
Indonesia and Philippines are also witnessing pressure on their currencies as they also run current account deficits. But their fall is less than 9 per cent year to date.
US dollar, meanwhile, weakened against major currencies. But risk aversion in emerging markets continues. "There are enough reasons to be bearish on stocks and the rupee at a time when other emerging markets are correcting. Any action by RBI may lend support, but only temporarily," said a senior currency dealer.
Meanwhile, the benchmark stock indices, which were trading week till the afternoon session, shot up in the last two hours of trade. The Sensex gained 305 points, or 0.81 per cent –most since September 6—to end at 37,718. In the previous two sessions, the index had lost 977 points weakness in the rupee and spike in bond yields. The Nifty 50 index rose 82 points, or 0.73 per cent to close at 11,370. Market players said value buying and short-covering aided gains. The biggest contributors to the index gains were ITC and Reliance Industries, which rose three per cent and one per cent respectively. Axis Bank fell 2.3 per cent, most among Sensex components. Foreign portfolio investors (FPIs) sold shares worth Rs 10.9 billion, while their domestic counterparts providing buying support to the tune of Rs 5.4 billion."
'Market turned positive supported by a recovery in rupee from all time low and rebound in consumer stocks after a nose dive correction. The global triggers are not very supportive as trade tension remains a key catalyst while outflow of foreign funds in expectation of Fed rate hike is impacting the domestic sentiment. Any government intervention to contain the current account deficit and measures on rupee will provide impetus to the market," said Vinod Nair, head of research, Geojit Financial Services.