Heavy dollar buying pulled down the rupee on Friday to its lowest level in a week. According to currency dealers, India’s largest lender, State Bank of India, bought about $350 million on behalf of state-run companies in the defence sector during the last couple of hours of trading, which led to the rupee fall.
The rupee ended at 54.49, compared with the previous close of 54.47. It had opened at 54.49 and traded in a range of 54.27-54.69 during the day. The currency had closed at 54.69 on December 4.
During the day, government data showed wholesale price index inflation eased, leading to gains in the equity market, due to which the rupee had touched an intra-day high of 54.27 a dollar.
Foreign institutional investors (FIIs) pumped in $391.23 million into the domestic markets, compared with $577.14 million yesterday. The rupee is expected to weaken next week as the government’s defence purchases are expected to continue along with dollar demand by importers, according to dealers. Sandeep Gonsalves, forex consultant and dealer, Mecklai & Mecklai said the rupee would trade in the range of 54-55 next week.
According to experts, a sharp deterioration in the trade deficit is set to add to weakening of the rupee against the dollar by end-December. Some currency experts also do not rule out the possibility of the rupee touching the 56-mark by the end of this month.
Sonal Varma and Aman Mohunta of Nomura Financial Advisory & Securities (India) said in a report in October that the current account deficit (CAD) worsened in the quarter ended September 30.
According to Nomura estimates, it has worsened to an all-time high of around 4.9 per cent of GDP, compared with 4.2 per cent during the same quarter a year ago. According to Nomura, this has been on account of a sharp deterioration in the trade deficit.