Rupee fall continues unabated

MUMBAI, AUG 1: The fall in the Indian rupee is continuing unabated. The currency closed at an all time low of 45.15/16, declining by anoth...

MUMBAI, AUG 1: The fall in the Indian rupee is continuing unabated. The currency closed at an all time low of 45.15/16, declining by another 15 paise against the US dollar on sustained dollar demand from corporates and foreign funds in an extremely volatile interbank foreign exchange forex market today.

The Indian unit opened lower at 45.03/05 and continued its free fall on heavy dollar buying by nationalised and foreign banks in the absence of any direct intervention by the Reserve Bank of India RBI after the rupee breached the crucial barrier of Rs 45 per on Monday.

The rupee closed at a record low of Rs 45.15/16 netting a loss of about 15 paise as against the previous close of 45.01/03.

Dealers said that continued dollar purchases by State Bank of India and other banks put a severe pressure on Indian currency for the second day today. They said that banks were seen buying dollars for their clients on account of interest payments on overseas borrowings, oil payments. Besides, the demand by foreign institutional investors FIIs for dollars also added fuel into it, they said.

The RBI launched a defence of the currency on July 21, but the stabilising effects have worn off, and the rupee, trading at 45.15/16 per dollar on Tuesday, is lower now than it was then. The RBI8217;s liquidity squeeze and higher interest rates have proved powerless against a market driven by genuine trade flows, rather than excessive speculation, dealers said.

quot;We have a substantial trade deficit which needs to be funded and this has resulted in a mismatch of flows,quot; said the head of foreign exchange trading for HSBC.

Another dealer expected the rupee to stabilise around 45.10/20 for now, but other analysts suspected the RBI might opt to squeeze liquidity again to brake the slide. quot;My own feeling is that some more tightening of interest rates by the RBI is on the cards. The market is surprised because it is not finding the measures sufficient enough,quot; R Ravimohan, Managing Director, Credit Rating Information Services of India Ltd commented.

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The central bank raised interest rates last month to increase the differential with the United States, in order to persuade exporters to remit their earnings faster and non-resident Indians to deposit funds in their home country. But fresh speculation that the US rates will rise again has undermined the RBI8217;s strategy.

The RBI has in the past appeared comfortable with allowing an orderly depreciation of the rupee in line with inflation rate differentials between India and the major economies. So far this year the rupee has lost only around 3.5 per cent against the dollar, which is fairly modest compared to many other currencies.

The latest trade data underlined the pressures building on the rupee, which is only convertible on the current account. Even a 27.55 per cent surge in exports in June could not counter the growing import bill, swelled by high-priced oil.

For now, foreign funds cutting their exposure to Indian stock markets has added to the rupee8217;s woes. Foreign funds sold a net 324.7 million worth of equities in July, helping to pull the benchmark Sensex 15 per cent below its starting level for 2000.