The rupee lost value against dollar as foreign institutional investors (FIIs) resorted to heavy selling of shares on the stock exchanges due to worries over debt crisis in Europe. Dealers said overseas investors were cutting down their investment in Indian shares due to global factors. It is weakening sentiment towards the rupee. Being a current-account deficit country, foreign capital flows are important to offset the shortfall from trade flows.
According to Bloomberg data, the rupee slid by 25 paise (half per cent) to Rs 47.09 per dollar at close of trading. The currency has weakened 4.6 per cent so far this quarter, Asia’s second-worst performance, after South Korea won. Exporters were also seen selling dollars around Rs 47.25, which helped the rupee trim its fall, but there was downward pressure from weak local shares. The uncertain business climate is impacting the global trade that could add to pressure on the rupee. India’s current account may widen to $30 billion in 2010 from $25.6 billion last year.
Offshore forwards indicated that the rupee will trade at Rs 47.58 to the dollar in three months, compared with expectations of Rs 47.15 at the end of last week. Forwards are agreements in which assets are bought and sold at current prices for future delivery. A senior State Bank of India official said if problems in Europe persist despite best efforts by governments, the rupee could see further depreciation. The global investors may turn jittery to reduce exposure to emerging markets. The rupee may drop to as low as Rs 50 per dollar this year as the currency should be “fundamentally on a depreciating path”.
Bonds advance
The 10-year bonds rose for a second day on speculation that Europe’s widening debt crisis will hamper a global recovery, delaying interest-rate increases in Asia’s third-largest economy.
The yield on the 7.8 per cent note due May 2020 dropped four basis points to 7.48 per cent as of the 5:30 pm close in Mumbai, according to RBI’s trading system. The rate touched 7.44 per cent, the lowest level since May 25.
