Spelling fresh trouble for the Indian economy,rupee today touched a new low of 55 to a dollar,losing 61 paise in a single day but RBI stayed away from shoring up the domestic currency.
As Finance Minister Pranab Mukherjee said yesterday that the Centre was not sitting idle and watching the situation,the market was expecting some steps from the government to control further damage to rupee.
At the Interbank Foreign Exchange (Forex) market,the domestic currency opened slightly lower at 54.45 a dollar from last weekend’s close of 54.42 and immediately touched a high of 54.44.
However,it fell sharply at the fag-end of trading breaching the crucial 55-level and closed at 55.03,a fall of 61 paise or 1.12 per cent from its previous close.
Though rupee plunged to record low levels for the third day in a row,RBI was conspicuous by its absence in the forex market. Dealers,however,said RBI could intervene with policy measures when markets resume tomorrow.
“Rupee breaching Rs 55 is a bit of worry. However,we expect the government to come up with some measures…,” said N S Venkatesh,Head of Treasury IDBI Bank.
Rupee has lost over 22 per cent in the last one and about 11 per cent since March this year. The pressure increased especially since mid-March,when the foreign funds started withdrawing from the Indian stock market.
The foreign institutional investors have pulled out Rs 1109 crore in April and Rs 206 crore in May after pumping in net Rs 44,000 crore in January,February and March exerting pressure on the country’s current account deficit.
Erosion in rupee value has meant increasing cost of imports,including crude oil. But for correction in the crude oil prices in the global markets,the situation would have been precarious.
The currency volatility is also resulting from problems in Eurozone at a time when the Indian economy is grappling with interest rates,inflation and increased fiscal problems.
To arrest the fall in rupee’s value,in the past few weeks,the Reserve Bank of India (RBI) had taken some measures,including directing exporters to convert 50 per cent of the balance in exchange earner’s foreign currency account (EEFC) accounts into rupees,which will come into effect from tomorrow.
Hemal Doshi,Chief Currency Strategist,Geojit Comtrade,said,”Rupee depreciation was mainly due to structural factors faced by the Indian economy like twin deficits (current account deficit and fiscal deficit) and high inflation among others. Also,developments in Europe are also weighing on the domestic currency.”
Exporters,however,stand to gain as a falling rupee is likely to increase their profitability. For IT companies too,usually a depreciating rupee helps as they earn revenues in dollars.
However,with most companies hedging their earnings well in advance,the current fluctuation may not make huge difference. Software industry body Nasscom has also expressed concern on the issue. “More than depreciation,the volatility of currency movement is a concern that needs to be tackled since it hinders the planning process for the Indian IT-BPO industry,” Nasscom said.