Rupee drops to new low against dollar

Impact of risk aversion globally ahead of U.S. elections

November 05, 2012 06:41 pm | Updated November 16, 2021 09:56 pm IST - Mumbai

Rupee dropped to an eight-week low against the U.S. dollar on Monday following uncertainty over a Greek Parliamentary vote on austerity on Wednesday and risk aversion globally ahead of U.S. elections.

The rupee closed at 54.60/61 a dollar after falling to 54.65 intra-day, its weakest since September 14, as compared to 53.8050/8150 last Friday.

“Rupee fell due to the rise of dollar in the international market against the euro and gold price followed by certain stop-loss getting triggered in India at around Rs.54.20 a dollar in mid-afternoon session. There were also reports that gold importers were covering their currency exposure, which also fuelled the fall of rupee by 80 paise from the previous day’s close,” said K. N. Dey, Director, Basix Forex.

The eurozone debt crisis is again haunting the financial markets across the world as Greek Parliament is due to vote for reforms on Wednesday.

Roller-coaster ride

The Indian rupee has witnessed a roller-coaster ride over the past two months swinging from a gain of almost 7 per cent in September to a loss of nearly 4 per cent in October. From a five-month high of 51.38 against the U.S. dollar in early October, the rupee has now weakened to a six-week low of above 54, said ING Vysya Bank in a report.

While rupee’s gains in early September were triggered by the optimism surrounding ECB and U.S. Fed stimulus measures, the sharp rally over following weeks owes mainly to the domestic announcements over a slew of remedial reform measures announced by the government.

Despite robust flows of foreign funds — foreign institutional investor net inflows were $4.1 billion in September and $3.2 billion in October — the rupee has now come under pressure as the investor focus has shifted towards the implementation of the measures announced.

“Most of these actions would provide guidance for the extent to which fiscal slippages can be trimmed and FDI inflows given a boost to curb inflation and support growth in the medium-term,” said Upasana Bhardwaj, Economist, ING Vysya Bank.

Additionally, according to her, the Reserve Bank of India’s (RBI’s) recent decision to stick firmly to its anti-inflationary stance and refrain from reducing the key policy rate has further worsened the concerns on the growth front.

While recent weakness in rupee can partly be attributed to the seasonal pick-up in gold imports and rekindling of European debt woes, global tail risk events in the near- to medium-term have receded.

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