Crackdown restores confidence in rupee

The crackdown against illegal currency dealers has kept the exchange rate under control so far as the dollar lost in both the open and interbank markets. The State Bank reported the closing price of dollar as Rs294.90, noting a depreciation of Rs1.05. The dollar was priced as Rs295.95 a day earlier. Since the peak of Rs307, the dollar has lost Rs12 in the inter-bank market while the day-to-day decline in the dollar prices is boosting confidence in the local currency. The confidence further improved with the steep fall in dollar rates in the open market since the launch of a crackdown on illegal currency trade. The dollar further fell by Re1 in the open market, trading at Rs296. The difference of rate is just above Re1 which is highly comfortable for the government. Under the IMF’s Standby Arrangement, the differential should be less than 1.25 per cent. However, two fears haunt the currency market these days — how long this crackdown will continue and how long this exchange rate will be sustainable. Sources in the banking industry said the inflow of remittances after crackdown has started increasing while the higher selling of export proceeds provided much needed liquidity to importers.