The rupee depreciated by 38 paise on Tuesday to close at a 31-month low of 50.67 against the dollar, inching closer to its all-time low of 51.92 in March 2009.
According to the Bombay Stock Exchange, there were net fund outflows of Rs 409 crore on Tuesday, as the domestic equity markets fell by around 1.5 per cent.
“India's high trade and current account deficits and the elevated global uncertainty is compounded by the fact that exporters are not selling, convinced the rupee is going to depreciate further, creating a 'self-fulfilling' weak equilibrium, despite reported attempts by the Reserve Bank of India (RBI) to intervene,” said Sajjid Chinoy, India economist, JP Morgan. The currency lost close to 15 per cent in the last three months. Market participants sat further shocks from the euro zone may push the rupee to all-time lows.
“This weakness would continue further, owing to concern over the global markets and the domestic issues faced by the economy. The growing inflation, increasing deficit and cut in growth forecast would further affect the rupee,” India Forex Advisors said in a note.
While central banks around the world are intervening to prevent further depreciation of their respective national currencies, RBI continues to stick to its policy of not targeting a foreign exchange rate. RBI data showed the central bank sold dollars in September, when the rupee depreciated 6.25 per cent.
Kaushik Basu, chief economic advisor to the ministry of finance, said any bad news from the euro zone was bound to affect India. “Every time there is some turbulence in Europe, money from all over the world seems to recede and go into US treasuries because there is a feeling that you may not earn money, but at least your money is secure. So, there is concern,” Basu said on the sidelines of an event in Mumbai on Tuesday, adding there was a risk of a sudden crisis being sparked off in the euro zone.
“While further weakness cannot be ruled out in this environment, the likelihood of a sharp mean reversion is also possible, facilitated by the fact that exporters would sell if they believe they have missed the peak,” said Chinoy.
BONDS FIRM UP
Government bonds firmed up on good buying support from banks and companies. The 8.79 per cent government security maturing in 2021 recovered smartly to Rs 99.40 from Rs 98.86 yesterday, while its yield declined to 8.88 per cent from 8.96 per cent.