The Hindu : Business : Rupee hits psychological 45-mark against dollar

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Rupee hits psychological 45-mark against dollar

Special Correspondent

The Indian currency has declined by more than 12 % this year

MUMBAI: The Indian rupee dipped below 45 a dollar on Wednesday to close at 45.11/12 as compared to the previous close of 44.80/82. The rupee has declined by more than 12 per cent against the dollar this year erasing all-of-last year’s 12.2 per cent advance against the dollar. It touched a low of 47.04 in July 2006 after touching a high of 44.11 in January that year.

“It’s more or less on expected lines and the market was expecting a drop in the value of rupee. This fall is in alignment with overseas dollar strength. Also, falling gold and crude prices have led to an increase in demand for these commodities,” said K. Harihar, Executive Vice-President, Treasury, Development Credit Bank. This is a seasonal buying time for gold in India, ahead of Deepavali. So, many corporates and refineries are covering dollar as the prices of these commodities started falling in the global market.

“This is a robust time for non-oil import also,” Mr. Harihar added. In the world gold market, the price has come down to $775 an ounce after touching a high of $1,002 an ounce in New York in March this year. The U.S. dollar is also gaining against other major currencies.

“Once the rupee broke the 43.50-mark, the fall towards 44.50/45.00 was an expected target,” said V. Rajagopal, Chief Forex Dealer, Kotak Mahindra Bank, adding, “It does appear there is some more scope for rupee weakness. A level of 45.50/46.00 seems possible now”. However, according to Mr. Rajagopal, “the fall in crude oil prices does not seem to have favoured the rupee much”. He believes rupee and oil are not positively correlated while many argue oil prices are a key driver of the value of the rupee.

Oil ministers of the Organization of Petroleum Exporting Countries (OPEC) agreed on Wednesday to reduce overall output by 5.20 lakh barrels a day to bolster falling prices. This move sent oil prices rising. Light, sweet crude for October delivery rose 97 cents to $104.23 a barrel in electronic trading on the New York Mercantile Exchange (Nymex). Oil prices had lost more ground on Tuesday ahead of the decision, falling $3.08 to settle at $103.26 on the Nymex, the lowest settlement price since April 1 this year.

However, it is not clear whether the decision to reduce production will hold the price above the psychological barrier of $100 a barrel, a concern for many OPEC nations. Though some nations argue that high oil prices will diminish demand, others feel that flow of money should remain as earlier.

Since crude surged to a record $147.27 a barrel on July 11, it has plunged by over $40, or more than 27 per cent. Still, prices remain close to 14 per cent higher this year than in 2007.

The Reserve Bank of India Governor D. Subbarao on Tuesday said that the central bank’s exchange-rate policy had served it well so far and the bank would continue its policy of managing volatility in the foreign exchange market. Central banks intervene in currency markets by arranging sales or purchase of foreign exchange.

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