The rupee retraced intra-day losses as banks liquidated long dollar positions in the last few minutes of trade amid talk that norms on foreign institutional investment may be relaxed further, dealers said.
The Indian unit ended at 47.88 to a dollar on Tuesday after touching a new over five-year low of 48.14 to a dollar $1 intraday. On Monday, it had closed at 47.81.
“There was some rumour of FDI (foreign direct investment) and FII norms being relaxed,” said a dealer with a state-owned bank. However, contrary to the expectations of relaxation in FII norms, the government eased norms for companies borrowing funds from overseas markets. After the market closing, the government said definition of the core sector will encompass mining, exploration and refinery sectors for raising external commercial borrowings (ECBs).
At present, core sector companies are allowed to bring in $500 million through ECBs for rupee expenditure, while for the non-core sector the amount has been capped at $50 million.
On Monday, the Securities and Exchange Board of India (Sebi) had relaxed norms on investment by foreign funds via participatory notes. The capital market regulator had allowed issuance of P-notes with derivatives as underlying assets.
FIIs have also been permitted to hold more than 40 per cent of their total assets in the form of P-notes.
The rupee weakened to below 48 to a dollar in opening trades on Tuesday, ignoring the 50-basis-point Cash Reserve Ratio cut by the Reserve Bank of India on Monday. The CRR cut will release Rs 20,000 crore into the banking system on Saturday. The Indian currency’s movements closely reflected the share market trend. A fall in local shares led to the dollar demand from banks on expectation of foreign fund outflows.
Foreign funds have been persistently liquidating Indian shares and debt investments.
| MIXED BAG Currency per dollar | |||
| Jan 02,2008 |
Oct 07,2008 | % change | |
| Korean won | 925.65 | 1328.30 | -43.50 |
| Pakistani rupee | 60.90 | 78.53 | -28.94 |
| Indian rupee | 44.23 | 47.93 | -8.34 |
| Indonesian rupiah | 8985.00 | 9555.00 | -6.34 |
| Taiwan dollar | 32.40 | 32.37 | 0.09 |
| Hong Kong dollar | 7.78 | 7.77 | 0.12 |
| Malaysian ringgit | 3.53 | 3.49 | 1.03 |
| Thai baht | 35.41 | 34.53 | 2.49 |
| Singapore dollar | 1.53 | 1.46 | 4.42 |
| Japanese yen | 118.85 | 102.57 | 13.70 |
| Source : Bloomberg | |||
So far this month, foreign funds have pulled out investments to the tune of $599 million from the country compared with $1.97 billion outflow in September. “The rupee is likely to remain under pressure as there is no support for it. It may recover only if the stock markets stabilise. On Tuesday, the stocks were very choppy,” P Mukherjee, president, treasury, Axis Bank, said.
Call ends down on lower cash demand
The call money rate ended down on Tuesday because demand tapered off towards the close of trade, with banks having already met most of their mandatory reserve requirements, dealers said. The one-day call rate ended at 10.25-10.65 per cent, compared with 11.00-11.50 per cent on Monday.
CBLOs ended at a weighted average rate of 9.19 per cent compared with 9.34 per cent.
The call rate had touched a low of 8.50 per cent intraday because some lenders chose to slash rates to deploy their excess cash amid weak demand.
“Some private banks had surplus cash, which they lent desperately at a low rate. However, liquidity continues to remain tight in the system,” said a dealer at a state-owned bank.
Dealers estimate liquidity shortfall to be around Rs 60,000-70,000 crore in the banking system. Tight liquidity was evident from heavy borrowing by banks through the Reserve Bank of India’s repo tender. On Tuesday, banks borrowed a total sum of Rs 63,285 crore via the central bank’s repo tenders.
G-sec yield dips below 8% intraday
BS Reporter adds: The yield on the 10-year government paper fell below 8 per cent for the first time since May after the Reserve Bank of India (RBI) announced a reduction in the Cash Reserve Ratio (CRR) by 50 basis points. In addition, there was expectation of moderation in inflation as global commodity prices have declined.
The yield on the 8.24 per cent paper due April 2018 was at 7.97 per cent this morning, compared with yesterday’s close of 8.13 per cent. It fell to 7.95 per cent during the day before closing at 8.11 per cent, according to data on the Clearing Corporation of India website.
Dealers said prices fell, and consequently yields rose, later in the day as the fall in the rupee against the dollar raised fresh fears of liquidity tightness.
