Dollar up vs Rupee today, but effect of Rupee strength being felt

The dollar gained strength against the rupee in the inter-bank market on Thursday. The dollar rose by four paisas. An analyst said that the dollar continued to witness a surge in its demand for the second consecutive session, which pushed the greenback value higher against the local currency. The dollar closed at Rs 60.44 at buying and Rs 60.49 at selling as compared to Rs 60.40 of last session. The pound sterling again gained strength against the rupee as it closed at Rs 123.87 at buying and Rs 124.07 at selling as against Rs 123.77 on Wednesday gaining 10 paisas. The euro also strengthened against the rupee as it closed at Rs 83.50 at buying and Rs 83.70 at selling as compared with Rs 83.26 previously gaining 24 paisas.

Open market: The dollar gained strength against the rupee in open market. It closed at Rs 60.92 at buying and Rs 60.97 at selling as compared with Rs 60.90 of the previous session gaining two paisas. The pound sterling also strengthened against the rupee in open market as it closed at Rs 124.40 at buying and Rs 124.60 at selling as compared to Rs 124.10 of the previous session gaining 30 paisas. The euro gained against the rupee. It closed at Rs 83.75 at buying and Rs 83.95 at selling as against Rs 83.45 of the previous session gaining 30 paisas. staff report
Rupee / US Dollar Forex Currency News, Gold in India, and The Sensex index on the Bombay Stock Exchange (BSE). Euro / Rupee and Yen / Rupee.

Continued appreciation of rupee against US dollar coupled with rising inflation in Gulf countries has adversely hit nearly five million Indians working in the region, with their salaries and savings taking a dip.

Weakness of the dollar has dragged the value of Gulf currencies to which it is pegged. As a result, Indian workers' salaries are nearly 30 per cent less in terms of rupee than a year ago.

Last year, each UAE dirham was worth Rs 12.70, but today the rate has slumped to below Rs 11
India should not use the rupee to check inflation pressures as the currency's strong surge this year will only hurt growth, a member of the Reserve Bank of India's panel on capital account convertibility said on Thursday.

Gold in India, and The Sensex index on the Bombay Stock Exchange (BSE). Euro / Rupee and Yen / Rupee.

"I don't think the exchange rate can be or should be used to contain inflation. Alarm bells are already ringing due to the sharp appreciation of the rupee and this will affect growth," Surjit Bhalla, principal at Oxus Research & Investments, said.

"The costs are lower growth and benefits are none."

The rupee has risen more than 9.5 percent against the dollar this year -- more than any other Asian currency -- powered by foreign investment in the economy and financial markets.

The rupee closed at 40.3525/3625 per dollar on Thursday, not far from a nine-year high of 40.28 hit in May.

In the seven months to the end of May, the central bank bought $28.4 billion in intervention to stem the rupee's rise.

This dollar-buying intervention releases rupees into the money market, which the Reserve Bank then tries to absorb by issuing debt so as not to add inflation pressures, a process known as sterilisation.

"The cost of sterilisation is highly exaggerated, as these costs can be more than offset by the productivity gains in the economy," Bhalla said.

The Indian economy, Asia's third-largest, grew 9.4 percent in 2006/07 and the central bank expects it to expand by about 8.5 percent the fiscal year ending in March 2008.

Bhalla said inflation was caused by supply factors, rather than being driven by demand.

"In my view, the policy makers have completely misread on the inflation front as the inflation was a supply-shock phenomenon," he said.

The wholesale price based inflation rate has moderated to 4.3 percent on June 30 from a two-year high of 6.7 percent in January. The central bank has a target of containing inflation to near 5 percent in 2007/08.