The news of the appointment of new Reserve Bank of India (RBI) Governor Raghuram Rajan was not received well by the market with the Indian rupee falling to a new record low close on Wednesday.
After two days of gains,the Indian rupee tumbled 53 paise to a fresh closing low of 61.30 against the US dollar amid bearish local stocks and renewed demand for the American currency from importers.
The local currency was also dragged lower by indications that the US Federal Reserve would taper its bond-buying programme. Fresh capital outflows added to the negative sentiment on the rupee,a dealer said.
The rupee opened at 61.15 a dollar from the previous close of 60.77 at the Interbank Foreign Exchange Market. While it regained some ground to 60.94 on the back of a recovery in local equities,the currency again turned negative in line with a drop in stocks to a low of 61.45.
The rupee ended at 61.30,a fall of 53 paise,or 0.87 per cent. The previous closing low was 61.10 on Friday. In the past two days,the rupee had gained 33 paise or 0.54 per cent.
“It witnessed a slight recovery in anticipation of government measures to curb the fall in the currency,” said Abhishek Goenka,CEO of India Forex Advisors. “The Finance Ministry and the RBI were to meet today to discuss what more measures can be taken to address the problem. Any positive announcements from them will help rupee to erase its losses.”
The benchmark S&P BSE Sensex declined over 68 points,or 0.36 per cent,after plunging 2.34 per cent yesterday. FIIs sold a net Rs 350.93 crore of shares today,according to provisional data with the stock exchanges.
Most stock indices globally ended lower after a US Federal Reserve official yesterday indicated it could start tapering the bond-buying programme as early as next month.
“The trading range for the spot USD/INR pair is expected to be within 60.90 to 61.90,” said Pramit Brahmbhatt,CEO of Alpari Financial Services (India).
Forward dollar premiums ended mixed,with minor changes.
The benchmark six-month forward dollar premium payable in January softened to 261-264 paise from Tuesday’s close of 262-266 paise,while far-forward contracts maturing in July edged up to 488-492 paise from 486-491 paise.
The RBI fixed the reference rate for the dollar at 61.3940 and for the euro at 81.6990.
The rupee fell sharply against the pound sterling to 94.62 from the previous close of 93.33 and dropped against the euro to 81.52 from 80.64.
It tanked further against the Japanese yen to 63.03 per 100 yen from 61.94.
Indian rupee hits record low of 61.30 as dealers await support measures
(Reuters) The Indian rupee fell on Wednesday to within striking distance of a record low,as dealers waited for word from policymakers on steps designed to boost inflows and prop up the battered currency.
Bond and forex dealers were betting the next steps to defend the rupee would come from the government,averting further harsh measures by the central bank to tighten cash.
Financial sector regulators,including Raghuram Rajan,who takes over next month as governor of the Reserve Bank of India,were meeting in the financial capital,Mumbai,but the meeting’s outcome is not yet known.
New Delhi is likely to relax borrowing rules for debt-laden Indian companies,including doubling the amount a firm can borrow overseas to $1.5 billion.
The rupee closed at 61.30/31 against the dollar,clawing back slightly from the day’s low of 61.4475,which was not far off the previous day’s record low of 61.80.
“Rajan is definitely a big positive for the RBI and India,” said Paresh Nayar,head of fixed income and currencies at First Rand Bank. “But rupee appreciation is dependent on some major macro announcements. We all are living on hope … and the wait is getting a bit longer.”
New Delhi has considered a sovereign bond issue or a sale of bonds to non-resident Indians by state-run firms,although the central bank has opposed a sovereign issue.
Policymakers have tried to avoid raising the policy repo rate,a step likely to force up bank lending rates,for fear of worsening a slowdown in an economy that grew 5 percent in the last fiscal year,its slowest rate in a decade.
The central bank’s costly gamble last month to raise short-term interest rates and drain market liquidity in order to defend the rupee at the cost of crimping corporate credit is not paying off,with the currency down 2.3 percent since before the measures were unveiled on July 15.
Bonds posted gains,with the benchmark 10-year yield down 6 basis points at 8.14 percent.
The central bank’s steps were increasing downside risks to growth,Morgan Stanley said on Wednesday,which could slide to levels of 3.5 percent to 4 percent if the economy fell into a vicious slowing cycle.
The investment bank’s warning comes amid recent cuts in growth forecasts for Asia’s third-biggest economy from a raft of banks and brokerages,such as Bank of America Merrill Lynch,Macquarie and CLSA.
India’s Congress-led government,facing a hostile opposition in the monsoon session of parliament that started this week,has been promising more steps to boost fund inflows.
But a second day of gridlock in Parliament over India’s response to a border ambush that killed five soldiers in disputed Kashmir raised questions about how the government would drive through its bulky legislative agenda,including an ambitious food security measure.
Most investors saw India’s battered image being helped by Tuesday’s appointment of Rajan,a former chief economist of the International Monetary Fund,to head the country’s central bank.
“We think Rajan’s appointment will give the government breathing space to come up with a more credible road map to address currency weakness and outflows,” Barclays economists wrote in a note.
“To restore market confidence,the authorities need to change the strategy and admit to the seriousness of imbalances in the economy and come up with a strong package of measures addressing both short-term flows and the need to stimulate growth and reduce the current account deficit.”