The rupee fell the most in nearly six months as equities dropped in response to slide on regional stock markets.
The rupee ended the day at Rs 48.96 as against Rs 48.25 a dollar on Friday, according to data compiled by Bloomberg.
After a drop in foreign direct investment into China and an unexpected decline in US consumer confidence spurred a slide in regional stocks. Dealers said the fall in stocks impacted the foreign exchange market. The Bombay Stock Exchange’s Sensex fell by 626.7 points (4.07 per cent) to 14,784 today.
Investors are still not confident economic fundamentals are strong, because of which demand for risker assets remains weak, a trader with small private bank said.
That sentiment is pressuring the rupee, which may persist in the coming weeks. It might slip to 49 this week, dealers added.
Overseas investors sold more Indian equities than they bought on all but two of the seven trading days through August 13, exchange data show.
Offshore contracts indicate the rupee will trade at 49.08 to the dollar in a month, compared with expectations for a rate of 48.32 on August 14. 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.
Dealers said rupee is likely to extend its fall against the US dollar on Tuesday because banks may continue to buy the greenback expecting outflows from foreign institutional investors to persist. Expectation of outflows from foreign funds may prompt banks to buy dollars in opening trade, which could weaken the rupee Tuesday.
Five-year bonds gain
Five-year bonds gained, snapping a two-day loss as falling energy prices tempered concern that inflation in Asia’s third-largest economy will quicken. Yields on the most-traded debt due in 2014 fell from an almost eight-month high after the cost of crude oil slid almost 5 per cent last week, the most in a month.
The yield on the 6.07 per cent note due in May 2014 dropped seven basis points, or 0.07 percentage point, to 6.81 per cent on the close of trade, according to the central bank’s trading system. The cheaper commodity may help reduce import costs for India, which meets more than 70 per cent of its local oil demand with purchases abroad. Bonds also rose as a slide in US Treasury yields added to speculation that global borrowing costs will remain low.
“Bonds have recovered some ground today as commodities such as oil and some metals have declined,” said Baljinder Singh, a trader at state-owned Andhra Bank in Mumbai. “Also, US fixed-income yields have come down quite sharply.”
Crude oil fell by as much as 2.8 per cent today in after-hours trading on the New York Mercantile Exchange, heading for the biggest two-day loss since July 29. The commodity dropped 4.3 per cent on August 14. The UBS Bloomberg Constant Maturity Commodity Index of 26 raw Materials slid 2.2 per cent today, extending the 2.5 per cent decline in the previous trading session.
Call rates unmoved
Call money continued to trade near the reverse repo rate of 3.25 per cent on Monday, as banks’ funding needs on the first day of a reporting cycle were too little to have an impact, amid ample cash conditions.
The overnight cash ended at 3.25-3.30 per cent, unchanged from Friday’s close. Banks also availed of the facility to borrow at cheaper rates from the collateralised borrowing and lending obligation (CBLO), an alternative to the inter-bank market, reducing chances of the latter coming under pressure.
