Rupee falls 26% in FY09, volatility to continue

The rupee has ended what would be one the most volatile financial years for the currency and foreign exchange dealers are predicting that it could take up to six months before there could be some signs of stability.

After touching an all-time low of 52.18 against the US dollar on March 3, the Indian currency closed March with the first monthly gain in 2009. But during the financial year, rupee fell 26.45 per cent to 50.75 against the greenback, as against 40.12 on March 31, 2008 as foreign currency flows dried up due to the global financial turmoil.

Starting October 24, the Indian current repeatedly break the all-time low records before some recovery towards the end of the month. Today, the Indian currency climbed 0.8 percent this month to 50.74 against the US dollar as the stock markets gained, with the Bombay Stock Exchange Sensex rising 1.5 per cent.

In addition, the Securities and Exchange Board of India showed average purchases of equities by foreign funds exceeded sales by $117 million in the week-ended March 27, compared with a net $49 million the previous week. Funds based abroad bought Indian equities worth $585 million last week, the most in a year, data from the stock market regulator show.

They made net purchases worth $246 million in the previous week.

Today rise in the rupee was in line with other currencies which appreciated against the dollar. For instance, the euro rose to $1.3327 compared with $1.3182 Monday, while pound sterling rose to $1.4303 compared with $1.4329.

“In the last 15 days there has been some bunching of foreign direct investment-related inflows, which have helped the rupee recover from the lows of around 52 (against the dollar),” said Agam Gupta, Standard Chartered Bank’s head of forex trading. The rupee has depreciated by 3.9 per cent since December 31.

Offshore contracts indicate traders bet the rupee will trade at 51.06 to the dollar in a month, compared with expectations for 51.49 yesterday. Forwards are agreements in which assets are bought and sold at current prices for future delivery.

Non-deliverable contracts are settled in dollars rather than the local currency.

Forex traders do not see the rupee at sub-50 levels over the next three to six months.

“The rupee recovered partly due to improvement in sentiments. But I do not see huge inflows over the next six months. It will happen once the world and local economies recover. The rupee is expected to range-bound with importers continuing to buy around 50,” said Gupta.

“Today’s rupee rise was on account of the global equity market movements and corporate selling. But overall Overall bearish trends will continue for another two to three months.

“Even now, the worst is not over so dollar selling will continue till June and the rupee could touch new lows,” said V Kumar Assistant General Manager at State Bank of Travancore. While dealers are not willing to take a call on where the rupee is headed after December, they expect it to be around 48-49 against the dollar at the close of 2009.

Going forward, dealers said that the impact of the capital account deficit would be minimal as it was something that had already been factored in given the large FII outflows. In the futures on NSE and MCX, the rupee contracts ended down today tracking the movement in the spot market, where dollar weakened. On NSE, one-month contract ended at 50.92 a dollar, as against 51.44 on Monday. Similarly, on MCX, one-month contract ended at 50.91 a dollar, against Monday's close of 51.43.