Rupee fall continues

MUMBAI, Nov 7: The rupee continued to fall against the dollar in a volatile foreign exchange market here on Friday. With heavy demand for d...

MUMBAI, Nov 7: The rupee continued to fall against the dollar in a volatile foreign exchange market here on Friday. With heavy demand for dollars from corporates and banks continuing, the rupee which closed at Rs 36.4575 on Thursady slid further to cross the 36.50 level and touch a low of 36.58. The rupee subsequently closed at Rs 36.53/54 against the greenback.

Indicating the strength of the dollar, the six-month forward premium on dollar remained equally volatile as it climbed to 7.40 per cent — up by 20 basis points from the previous day. The Reserve Bank of India kept away from forex market. The RBI governor, C Rangarajan had said that the central bank will intervene only "if there is a high degree of volatility".

The deferring the GAIL’s global depository receipts (GDR) issue had the expected effect of dollar supplies tapering down. “The market expects the rupee to weaken further as the volatile stock and currency markets worldwide will see foreign institutional investor (FII) inflow slowing down,” said a dealer.

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“The rupee went on a roller coaster ride,” said a dealer, summing up the day’s currency movement. The rupee weakened weaker at Rs 36.50/52 and it continued to lose ground as corporate demand for dollars increased to touch a low if Rs 36.58. “There were quotes at 36.58/59 as corporates went to cover all their urgent exposures,” said a dealer with a private bank.Dealers said that most of day’s trading were inter bank and there was no degree of speculation. "This is probably one of the reasons why RBI did not intervene in the market,” said a dealer said.

The weakening in the rupee is being attributed to tapering off capital inflows towards the end of the year. "FII inflows will dry up by December so the rupee will continue its process of gradual weakness,” said a dealer.

FIIs will start remitting funds towards the year end which will witness a further weakness in the rupee. “Only in January when the new allocation for funds comes in will the rupee start appreciating,” markets sources said.

Bankers expect a higher allocation for India as it is the one of the Asian countries that has remained unaffected by the recent South Asian currency and stock crash. Strong capital inflows had propped up the rupee for most of the calendar year.

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The after effects of the $ 800 million GAIL GDR’s withdrawal were still being affected — but marginally.

However fiscal deficit not remaining at 4.5 per cent is causing concern as far economic fundamentals are concerned. “The rupee might weaken further and cross the Rs 37 level by the year end,” said K N Dey, vice president, Mecklai & Mecklai.

The forward premium on dollar — six-monthly forwards (annualised) — went on a roller coaster ride in intra day trade. “It went up to touch a high of 7.6 per cent from 7.2 per cent but came back towards the close of the day’s trade to 7.4 per cent,” said a dealer.

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