The rupee hit a five-year low of 47.115 against the greenback in intra-day trade, before recovering to close at 46.97, the lowest since July 19, 2006. Apart from weak sentiments in the global equity markets, local factors also played a part.
The currency and bond markets will be shut on Tuesday for half-yearly book-closing of banks, hence demand for the US dollar was stronger on Monday. The demand was partly fuelled by the month-end purchases of oil marketing companies.
| FREE FALL Currency per dollar | |||
| 26-Sep-08 | 29-Sep-08 | % chg | |
| Korean won | 1161.30 | 1188.60 | -2.35 |
| Indian rupee | 46.55 | 46.97 | -0.88 |
| Indonesian rupiah | 9385.00 | 9451.00 | -0.70 |
| Thai baht | 33.90 | 34.02 | -0.35 |
| Malaysian ringgit | 3.44 | 3.45 | -0.32 |
| Singapore dollar | 1.43 | 1.43 | -0.16 |
| Pakistani rupee | 78.16 | 78.18 | -0.02 |
| Taiwan dollar | 32.06 | 32.06 | 0.02 |
| Hong Kong dollar | 7.78 | 7.77 | 0.12 |
| Japanese yen | 106.01 | 105.44 | 0.54 |
| Source : Bloomberg | |||
As a result, there was limited impact of the intervention of the central bank, which operated in the market through public sector banks. The rupee opened at 46.81 against the dollar, compared to Friday’s close of 46.54, before hitting an intra-day low of 47.11. The intervention by Reserve Bank of India (RBI) meant that the Indian currency closed at 46.97 against the dollar. A Reuters report quoted dealers as saying that public sector banks are estimated to have sold over $1 billion to help the rupee recover from the day’s lows.
“Inflation has affected the purchasing power of the rupee. In addition, India has an adverse balance of trade and balance of payments. Plus, the demand for dollar is very large, while supply is very poor. In the last two-three years, there was a massive supply because of investment in equity markets. On Monday it’s just the reverse,” said Arun Kaul, chief general manager, Punjab National Bank.
Foreign portfolio investors have been net sellers of $9.2 billion this year, according to data from the Securities and Exchange Board of India. They purchased a record $17.2 billion in stocks last year, which helped the rupee to complete its best annual gain in at least 34 years. In addition, the US dollar has gained against most currencies.
On Monday, seven of the 10 most-active Asian currencies, excluding the yen, declined according to data compiled by Bloomberg. The Euro and the pound fell over 2 per cent against the dollar as the impact of the latest financial turmoil spread beyond the US. The rupee and the Korean won fell the most against the US currency, Bloomberg data showed.
Dealers and treasury heads said the Indian currency continues to be under pressure. “Given the uncertain global environment and the volatility across all asset classes, we continue to expect the rupee to trade in the Rs 45-47 range in the next few months. However, with no change in the structural story, coupled with the impact of lower oil prices on India’s external account, we maintain our view of the rupee re-tracing back to the Rs 43-44 levels by March,” Citigroup said in a report.
Data based on currency futures trading on the National Stock Exchange too suggests that the rupee will trade between 46.50 and 47.30 between now and September 2009. Forward premiums also fell on Monday with one-year forward dollar was available at a premium of 37 paise, compared with Rs 2 a month ago.
