RBI Deputy Governor says central bank’s exchange rate policy has not changed.
The rupee breached the 52-mark against the dollar for the first time on continued pressure from overseas investors who are offloading domestic securities.
After touching a new lifetime low of 52.18 during the intra-day trade today, the Indian currency recovered to close at 51.97 against the dollar, which was three paise lower than yesterday’s close.
Dealers said the currency weakened for a seventh day, the longest losing streak since October, as foreigners sold Indian shares than they bought on all but five of the 19 trading days last month.
The Bombay Stock Exchange’s Sensex dropped 2.1 per cent in response to a sharp fall in the American capital markets yesterday. “The trend is clear, we are going to have more rupee weakness. The risk aversion is maximum,” said a currency dealer with a foreign bank.
The Indian rupee is the third-worst performer in the past 12 months among the 10 most-traded Asian currencies, with a 22 per cent loss. South Korea’s won and Indonesia’s rupiah have declined more. Funds based abroad sold $1.72 billion more Indian equities than they bought this year, adding to 2008’s record $13.3 billion in net sales, according to data released by the Securities and Exchange Board of India.
RBI Deputy Governor Shyamala Gopinath said, “The central bank is monitoring the situation. The dollar has strengthened against other major currencies. Our policy regarding rupee has not changed. We remain committed against excessive volatility.”
| SIX CURRENCY BASKET | |||
| Currency / Rupee | Feb 24, 09 | Mar 3, 09 | % chg |
| Chinese yuan | 7.29 | 7.60 | -4.25 |
| US dollar | 49.87 | 51.97 | -4.22 |
| Hong Kong dollar | 6.43 | 6.70 | -4.20 |
| Euro | 63.76 | 65.50 | -2.73 |
| Japanese yen | 52.09 | 53.12 | -1.98 |
| British pound | 72.37 | 72.98 | -0.84 |
| Source : Development Credit Bank | |||
Offshore contracts indicate that the rupee will trade at 52.33 to the dollar in a month, compared with expectations for a rate of 52.38 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.
The rupee’s losses were limited by speculation that the Reserve Bank of India will sell foreign currency from its reserves to limit volatility in the exchange rate. Central banks intervene by arranging sales or purchases of currencies to influence exchange rates.
Foreign exchange reserves have declined 21 per cent from an all-time high of $316.2 billion in May 2008, indicating that the central bank intervention in the market to stem sharp fall in value of rupee.
Global financial services firm Goldman Sachs said the rupee will bounce from its record low level to close at Rs 52 against the greenback and will gain about 10 per cent in 12 months once overseas borrowings resume, Goldman Sachs has said.
“Over a three to 12 month horizon, we expect the rupee to strengthen as deleveraging pressures ease. Our three to six and 12-month dollar/rupee forecasts are at 50.5, 48.0 and 46.9 respectively,” it added.
