RBI move fails to stem slide,Re falls sixth week in a row

* Longest weekly losing streak since the 2008 global financial crisis

Written by ENS Economic Bureau | New Delhi | Mumbai | Published:May 12, 2012 2:55 am

Despite the directive by the Reserve Bank of India (RBI) to exporters to sell half of their forex holdings,the rupee fell on Friday,posting its longest weekly losing streak since the 2008 global financial crisis,after data showing a contraction in factory output for March added to worries about the country’s economic outlook.

The rupee ended at 53.63/64 to the dollar,after it had closed at 53.44/45 on Thursday. It fell 0.3 per cent for the week.

The rupee remains within sight of a record low of 54.30 against the dollar hit on December 15,2011,having fallen for six consecutive weeks,its longest losing streak since a string of 11 weekly losses in late 2008.

Worries about India’s fiscal challenges and its growth outlook are combining with concerns about foreign outflows,leading to nervousness. The central bank has tried to stem the falls with frequent interventions,though no definitive signs of dollar selling emerged on Friday.

The precarious situation that the currency has fallen into,is expected to be the main focus of discussion when the RBI’s Central Board of Directors meet later this month.

“Given the current situation with the rupee,it is essential to get an idea of the forex reserves and see how far it will act as a buffer,” an official close to the development said. “It’s obviously a matter of utmost concern and needs to be discussed as part of the overall macro economic situation,” the official added.

However,traders do not think the RBI will be successful for long. Markets only felt a muted impact after a deputy governor said it will continue to target volatility in currencies and appeared to open the door for potential rate cuts.

Dealers said the continued fall in stocks also weighed on the rupee in addition to fresh dollar demand from importers,mainly oil refiners after the US currency strengthened.

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