RBI’s growth concerns, month-end dollar demand from importers and outward remittance from corporates dragged down the rupee by a whopping 106 paise to three-week low of 60.47, wiping out all the gains notched up on central bank’s recent liquidity tightening steps.
The steep fall in rupee came on a day when the Reserve Bank of India (RBI) in its first quarter review of monetary policy kept the all key rates unchanged but cut the GDP growth forecast to 5.5 per cent for FY’14 from 5.7 per cent earlier.
At the Interbank Foreign Exchange (Forex) market, the local unit opened lower at 59.62 a dollar from previous close of 59.41. It tried to recover to a high of 59.52 only to fall back to a low of 60.55 after the RBI policy trickled in.
Rupee later closed at 60.47, showing a fall of 106 paise — the biggest fall in last one month — or 1.78 per cent.
“There was some position cutting at 59.70—75 levels. A huge outward remittance from a corporate was also seen which kept rupee under pressure. Beyond 60 levels, panic buying from importers started,” said a chief dealer with a PSU bank.
RBI had come out with a series of steps, including those to drain excess cash from the financial system, after rupee plunged to all—time low of 61.21 on July 8. On Monday, rupee had closed at 59.41.
RBI’s dovish view on the coming quarters and lowering of GDP forecast also weighed on rupee. Investors are concerned about the recent the liquidity measures which the central bank today said will only be withdrawn once rupee stabilizes, said a senior treasury official at another state-owned bank.
Meanwhile, Chief Economic Adviser Raghuram Rajan on Tuesday said that government will announce some measures in the next few weeks to contain CAD and stabilise rupee.
The Indian benchmark S&P BSE Sensex on Tuesday tumbled by 255 points, or 1.25 per cent even as FIIs pumped in 256.45 crore today as per provisional data with stock exchanges.
The dollar index was up by 0.03 per cent against its major rivals ahead of US Federal Reserve’s policy meeting starting later in the day.
A weaker rupee makes imports like crude oil costlier, increasing risks to rise in inflation.
Pramit Brahmbhatt, CEO, Alpari Financial Services (India) said: “Today Rupee futures depreciated by almost 2 per cent and was trading over 60.50 levels in spot, as local equities closed down by 1.25 per cent which weakened rupee further. Also, the month end dollar demand from importers helped dollar to trade strong against the rupee.”
“Now looking at the present scenario, rupee is expected to breach the all time low level of 61.21 in coming days. The trading range for the Spot USD/INR pair is expected to be within 60.10 to 60.90,” he added.
If rupee continues to sustain on a weaker note this week, then it will be a signal for the participants to get cautious, said Abhishek Goenka, Founder & CEO, India Forex Advisors.
Forward dollar premiums recovered on fresh payments from banks and corporates.
“In our view, the rupee will not settle down until the RBI recoups forex reserves. So, are the July 23 measures working? They have stabilised the INR at about Rs 60/USD.
Still, we believe the hard reality is that expectations cannot but float up to say, Rs 62/USD, unless the RBI replenishes its armory by issuing NRI or sovereign bonds,” said Indranil Sen Gupta, India economist, Bank of America Merrill Lynch.
The benchmark six—month forward dollar premium payable in December rose to 223—1/2—228—1/2 paise from Monday’s close of 222—226 paise.
Far—forward contracts maturing in June also firmed up to 448—452 paise from 439—444 paise.
The RBI fixed the reference rate for the dollar at 59.8280 and for the euro at 79.3277.
The rupee slumped against the pound sterling to 92.57 from last close of 91.34 and tanked to 80.28 per euro from 78.87. Rupee plunged against the Japanese yen to 61.79 per 100 yen from previous close of 60.75.