The rupee on Friday breached the 51-mark against the US dollar and touched a new lifetime low against the greenback.
The Indian currency fell by 68 paise to close at a record low of 51.16 due to continued capital outflows, arbitrage and some month-end demand from importers. The lowest level it touched was 51.17 and the previous low of 50.62 in early December.
In addition, bankers said that intervention by the Reserve Bank of India (RBI) has been limited as it did not want to suck out rupee liquidity and put pressure on interest rates. In 2008-09, RBI has sold around $30 billion so far to check a steep depreciation of the rupee. In recent months, its activity has been limited and in the latest round of depreciation, there has been little intervention, bankers said. “RBI’s presence is seen only to stem volatility,” a dealer said.
| Currency per dollar | |||
| Jan 01 2009 | Feb 27 2009 | % change | |
| Korean won | 1259.55 | 1534.35 | -21.82 |
| Indonesian rupiah | 10875.00 | 12000.00 | -10.34 |
| Singapore dollar | 1.43 | 1.55 | -7.83 |
| Japanese yen | 90.74 | 97.64 | -7.60 |
| Malaysian ringgit | 3.47 | 3.70 | -6.63 |
| Taiwan dollar | 32.82 | 34.93 | -6.44 |
| INDIAN RUPEE | 48.77 | 51.16 | -4.91 |
| Thai baht | 34.78 | 36.15 | -3.94 |
| Pakistani rupee | 79.13 | 79.89 | -0.96 |
| Hong Kong dollar | 7.75 | 7.75 | -0.05 |
| Source : Bloomberg | |||
Dealers said that besides the speculative demand to take advantage of the difference in rupee value in domestic market and overseas trades, strengthening of dollar against currencies also influenced rupee deals.
“It is more of speculative activity which is driving the demand than corporate requirement or month-end payment obligations of importers, including oil companies,” said a dealer with a foreign bank.
With the third quarter GDP growth estimated at 5.3 per cent, portfolio investors are expected to further liquidate their holdings in Indian equities and this puts pressure on the rupee.
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In the last 12 months, the currency has fallen 22 per cent against the dollar to emerge the third-worst performer among Asia’s 10 most-used currencies, Bloomberg data showed. Earlier this week, Standard and Poor’s lowered the outlook on India’s sovereign rating to negative from stable. With the chances of a rating downgrade to sub-investment not ruled out, FIIs may scale down their exposure to India to comply with investment norms set out for them globally, said a dealer.
A State Bank of India executive said that the dollar has strengthened against other international currencies and gold prices have dropped, resulting in lower demand for the yellow metal, and these factors have affected the Indian currency.
The market volumes are thin and any large transaction has substantial impact on the trend.
Going forward, the market expects some more pressure on the rupee.
Forward dollar-rupee premiums ended off low as exporters were cancelling their forward contracts noting the sharp rupee fall. The movement was very uncertain on Friday.
Intra-day, the one-year premium had fallen to 1.56 per cent on forward dollar sales from exporters and on expectations of interest rate cut by the RBI, dealers said. This indicated chances of further depreciation.
In the currency future segment on the National Stock Exchange, the most actively traded one-month dollar-rupee was last traded at Rs 51.10. Also, the one-month rupee contract in the non-deliverable forwards (NDF) market was traded at Rs 51.22/ 51.27.
Meanwhile, government bonds rose for a second day on Friday, pushing benchmark yields to a two-week low.
Notes maturing in 2018 posted their biggest weekly gain since January 16. The yield on the 8.24 per cent note due April 2018 slid 17 basis points to 6.34 per cent at close.