Hit hard by hefty outflows on U.S. Fed’s plan to exit stimulus, rupee on Thursday closed at all-time low of Rs. 59.57 against dollar retreating from nearly 60-levels on suspected RBI intervention and pep talk from government.
At the Interbank Foreign Exchange (Forex) market, the domestic currency commenced sharply lower at Rs. 59.50 a dollar from Wednesday’s close of Rs. 58.70 and dipped further to log its all-time low of Rs. 59.93 as market participants panicked after U.S. Federal Reserve chief Ben Bernanke said $85 billion a month bond buying programme may be slowed down from this year.
The rupee saw a marginal recovery to end at Rs. 59.57, still down 87 paise or 1.48 per cent over Wednesday’s close, after Chief Economic Advisor to Finance Ministry Raghuram Rajan said the government is ready to take steps to curb volatility and is “not short of instruments” to tackle slide in the rupee.
“Thursday’s movement is knee-jerk reaction of market to Fed Chairman’s comments. We saw a lot of panic in market which was sentiment driven, pushing rupee to touch all-time low. Also, possibly there was some intervention by RBI near low levels,” said Hemal Doshi, Currency Strategist, Geogit Comtrade.
Continued selling by foreign funds in equities also put pressure on the rupee as overseas investors pulled out over Rs. 2,000 crore on Thursday.
The dollar index was up by 0.72 per cent against a basket of six major global rivals after the Federal Reserve said the central bank may have scope to reduce the pace of monthly bond purchases, if the economy improves in line with its forecasts, shattering the global stock as well as forex markets.
“Ballooning current account deficit and cloudy outlook of reforms have added to the local currency’s woes. Outlook of rupee is expected to remain weak till structural steps are taken to improve CAD...,” said Kuntal Sur, Director, KPMG.
The Indian benchmark S&P BSE Sensex on Thursday tanked by over 526 points, biggest fall in 21 months, to end at over two month lows.
The rupee’s massive fall today is also due to heavy debt outflows, said traders. The economic logic for foreign funds to invest in domestic debt instruments is withering away as yield differentials are narrowing fast, they added.
Amid concerns that a weak rupee is set to make imports costlier, including oil and other commodities, and have a cascading effect on inflation, Planning Commission Deputy Chairman Montek Singh Ahluwalia said: “What you have seen is not a behaviour of the rupee“.
“You are seeing the behaviour of all emerging market countries against a great deal of global uncertainty triggered as it happens in this case because of statements made by the Federal Reserve,” he said at New Delhi.
Experts said rupee likely to rebound to Rs. 54-55 against the dollar by September 2013 on normalisation of gold imports and falling commodity prices to help lowering India’s CAD.
“We expect rupee to rebound in the near future to Rs. 54-55 per US dollar by September,” said Sujan Hajra, chief economist at Anand Rathi Securities.
Globally, emerging market currencies faced a torrid day today with South African Rand and Mexican Peso down by close to 2 per cent against dollar. “Going ahead, the rupee is likely to continue with its bearish trend as US dollar has started gaining momentum once again,” said Abhishek Goenka, Founder & CEO, India Forex Advisors.
Rupee had touched lifetime low of 58.98 against US dollar on June 11. It fell from 53.8 levels at the end of May and is among the worst performing Asian currencies this year.
Meanwhile, premium for forward dollar recovered on fresh payments from banks and corporates.
Benchmark six-month forward dollar premium payable in November rose to 153-1/2-155-1/2 paise from Wednesday’s close of 150-1/2-152 paise. Far-forward contracts maturing in May also firmed up to 313-1/2-315-1/2 paise from 304-306 paise.
The RBI fixed the reference rate for the US dollar at 59.7000 and for the euro at 79.1871.
Rupee remained weak against the pound sterling to 92.04 from last close of 91.83 while rebounded against the Japanese yen to 60.75 per 100 yen from 61.76. It ended a tad higher at 78.63 per euro from previous close of 78.64.