Month-end dollar demand from oil marketing companies and growing risk aversion globally led the rupee past the psychological level of 56 against the dollar. However, frequent interventions in the foreign exchange market by the Reserve Bank of India (RBI) kept the currency from hitting another all-time low.
On Wednesday, the rupee that fell for a consecutive session, lost one per cent over yesterday to close at 56.23, the lowest closing level so far.
The currency had hit 56 per dollar on May 23, while last Thursday it had touched an all-time intra-day low of 56.38. The rupee suffered more against the dollar against its performance against the euro. The rupee has fallen by 0.5 per cent against the euro this month, while against the dollar it has depreciated by 6.6 per cent. The dollar, being a safe haven currency, has been gaining against the euro. On Wednesday, the rupee fell 0.3 per cent against the euro.
The currency’s weakness continued despite a host of administrative measure announced by RBI, including asking exporters to cut their dollar holding by half.
“Weighed down by the poor domestic fundamentals, the currency is also pressurised by the recent developments in the euro zone. Global risk aversion from the euro zone kept the investors on the sidelines, as they became more cautious,” said India Forex Advisors. The euro was trading at 1.24 against the 1.25 level a day before, while the dollar index against six major currencies rose to 82.75 from 82.48 yesterday.
According to BSE, foreign fund outflows were of Rs 10.7 crore from Indian equity markets, which ended down 0.8 per cent on Wednesday. “There was huge demand from oil companies today as they made their month-end payments in dollars,” said a forex dealer with a domestic consultancy firm.
Dollar sales of above $ 500 million by the central bank avoided further fall in the exchange rate of rupee, said market participants. RBI intervened in both spot as well as forwards segments on Wednesday.
During the September-March period, RBI had sold $ 20 billion (net) in the spot market to curb volatility in the foreign exchange market.
Dealers said dollar sales by major information technology companies also helped the rupee trade in a relatively narrow range of 56.24-55.15 against the dollar.
The rupee had traced levels back to 55 per dollar as exporters converted half of their funds in exchange earner's foreign currency accounts to comply with RBI norms. Dealers said about $ 1-2 billion inflows were seen from such accounts.
However, further weakness is expected for the rupee if more such measures are not initiated. "The combination of weak fundamentals and strong dollar (against global currencies) will be deadly against the rupee and, needless to say, rally of the dollar against the rupee will be much faster than against other emerging market currencies," said Moses Harding, head of economic and market research at IndusInd Bank.
