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This is an archive article published on November 20, 2008
Rupee closes below 50 for first time
Despite the huge intervention by the RBI in the last several months, the rupee's plunge continued and closed below the 50 per dollar on Wednesday for the first time.
Written by Enseconomicbureau
Mumbai | November 20, 2008 12:00 AM IST
2 min read
2 min read
Despite the huge intervention by the Reserve Bank of India in the last several months, the rupee8217;s plunge continued and closed below the 50 per dollar on Wednesday for the first time. The rupee was hit by a falling stock market and demand for dollars to arbitrage a gap between offshore non-deliverable forward rates and spot market.
The rupee ended at 50.02/03 per dollar, 0.7 per cent weaker than 49.66/67 at Tuesday8217;s close. It hit a low of 50.03 in late trade, its weakest since October 27 when it hit a record low of 50.29. The rupee which ended at 39.41/42 per dollar on December 31, 2007, has now fallen 26.92 per cent in calendar 2008 so far, largely due to withdrawals by foreign institutional investors from India.
The rupee had gained more than 12 per cent from the previous year8217;s close of 44.26 on December 31, 2006. The gain in 2007 was due to heavy FII inflows of over 17 billion. However, the tide has reversed this year with FIIs pulling out over 13 billion 2008 so far.
Dealers now expect the rupee to fall to the 52-level soon. The RBI sold dollars via state-run banks to try to halt the rupee8217;s fall through the day on Wednesday, but volumes were not large. They estimated the RBI sold about 200 to 250 million on Wednesday. With the RBI using the forex kitty to stem the rupee slide, India8217;s foreign exchange reserves have fallen by over 58.3 billion to 251.36 billion since March 2008.
Some banks bought dollars in the onshore market to sell offshore and cash in on the price difference.
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