The rupee today plunged against the the dollar to a historic low of 54.56 before closing slightly better at 54.50 despite RBI’s intervention,raising widespread concerns about the health of the economy.
Forex dealers attributed the fall to strong capital outflows in tune with the fall in local as well as global stocks where investors are increasingly avoiding riskier assets and moving to the new safe haven – the US dollar.
At the Interbank Foreign Exchange,the domestic unit opened sharply lower at 54.06 and mostly remained bearish.
Intra-day it plunged to all time low of 54.56,surpassing the previous all-time low of 54.30 recorded in December last year.
Allaying fears,the Finance Ministry said there was no need to panic. “Rupee is falling due to global factors. There is no need to panic. The fall might continue till there is a certainty about the eurozone recovery. RBI is keeping a watch on it,” a finance ministry official said.
Dealers said RBI intervened at various levels in the market today but its efforts proved futile.
Meanwhile,RBI Deputy Governor K C Chakrabarty today said the RBI intervenes in the forex market only to curb volatility and not the slide. “We don’t intervene to arrest the rupee fall,we intervene only to arrest the volatility,you must understand the difference,” he said.
As the rupee touched a record low,Opposition questioned the government in the Lok Sabha on the steps being taken to tackle the situation. “The crisis in our economy is growing.
Are we heading towards 1991?” senior BJP leader Murli Manohar Joshi said during the Zero Hour.
Moses Harding,Head,ALCO and Economic & Market Research,IndusInd Bank,said fundamentals are working against rupee.
“Be it high current account deficit or fiscal deficit or liquid deficit in the system. Except,fall in crude oil prices,there is not a single supportive factor for rupee as of now. Also,dollar is strengthening against Euro,which is putting added pressure on the domestic currency,” he said.
Going forward,rupee may breach 56 levels soon,experts said. It will not be surprising if rupee touches Rs 56 level,said Indian Overseas Bank GM (Treasury) T S Srinivasan.
Axis Bank CEO & MD Shikha Sharma,when asked about the range of the rupee,however said 54 to a dollar is a “fair level”.
Though a a weak rupee is a major concern to many corporates,exporters especially IT companies stand to gain.
Infosys Chief Financial Officer V Balakrishnan said,”the rupee is depreciating because of what is happening globally where the euro is depreciating because of the Eurozone crisis. Also,we have got a unique problem where you have huge trade deficit and also the fiscal deficit.”
According to Pramit Brahmbhatt,CEO,Alpari Financial Services (India),active RBI intervention has been arresting loses in rupee but the rupee-dollar pair has been weakening for fresh lows on global currency depreciation.
Viral Shah,Head Institutional Business,Geojit Comtrade said given the present level of rupee,the central bank is likely to come up with some policy measures to arrest the fall of the rupee in a day or two.
The rupee premium for the forward dollar recovered on fresh paying pressure from banks and corporates.
The benchmark six-month forward dollar premium payable in October ended up at 158-160 paise from Tuesday’s close of 153-155 paise and far-forward contracts maturing in April also finished higher at 272-274 paise from 262-264 paise.
The RBI fixed the reference rate for the US dollar at 54.2925 and for euro at 68.8719.
The rupee reacted downwards against the pound sterling to end at 86.82/84 from overnight close of 86.57/59 and also fell back against the euro to 69.32/34 from 68.98/69.00.
It too dropped against the Japanese yen to 67.71/73 per 100 yen from last close of 67.36/38.
<b<Rupee's fall partly due to global factors: cbank deputy
The sharp fall in the rupee to a record low on Wednesday is partly because of global factors,H.R. Khan,a deputy governor at the Reserve Bank of India,said.
The RBI is aware of the situation. We have taken steps and will take further steps if necessary,he said at the sidelines of a summit of South Asian Association for Regional Cooperation in Nepal.
ROBERT PRIOR-WANDESFORDE,ECONOMIST,CREDIT SUISSE IN SINGAPORE
The rupee’s movement in the last few days is largely independent of India’s own fundamentals. However,it’s been harder hit among the Asian currencies,which is not unusual in a risk-off sentiment environment,and it suffers more because of large current account deficit issue. Obviously,we have seen RBI intervening. However,it can only help smooth the process of the ongoing depreciation in the context of what it is clearly widespread,significant and indiscriminate selling.
It is very hard for the central bank to turn the currency around. Clearly,the bigger picture sense is that rupee has been under pressure for some time now. Without doubt,the investors are looking for steps from the government in terms of structural reforms,be it in the form of news on goods and services tax or the direct tax code or some measures that might encourage infrastructure investments.
ROHIT ARORA,FIXED INCOME STRATEGIST,BARCLAYS CAPITAL,SINGAPORE
The rupee will most likely remain weak in the short term as is the case with all Asian currencies due to global risk aversion. Asian FX has weakened by 0.8-0.9 percent today and so has the Indian currency.
A view on levels in the next quarter will depend on how the structural risks in euro zone and global growth pans out. For India,weak fundamentals are another worry. But this doesn’t mean that if the dollar weakens then the rupee won’t appreciate.
JAGANNADHAM THUNUGUNTLA,STRATEGIST,SMC GLOBAL SECURITIES,NEW DELHI
This is a big negative. Foreign institutional investors are already losing money on the base equity asset and with currency related problems foreign money will be in jitters.
We expect to see huge mark-to-market losses in the June quarter results. Another issue is India imports 80 percent of its oil needs and although world oil prices are falling India is not getting the benefit of weakening crude because of the rupee.
The outlook is appearing to be quite bleak. I think the stock market is open to a 5-10 percent downside in the next month or two.
NITESH RANJAN,ECONOMIST,UNION BANK OF INDIA,MUMBAI
Difficult to tell at what level INR will settle; global weakness is adding pressure while our twin deficits are already recognised negatives. Domestic macro too is weak. One positive I see is attractive valuation of Indian equity market vis-a-vis its historical valuation levels. Perhaps this could be a trigger for foreign funds inflows at some point of time.
KISHOR P. OSTWAL,CHAIRMAN,CNI RESEARCH,MUMBAI
Where the rupee goes will determine the stock market movement,and in the short term,the rupee only looks set to fall.
If the rupee breaks 54.5 (rupees to the dollar),then we should prepare for 56,and that will bring the Nifty down to 4,600 points.
SEAN CALLOW,SENIOR CURRENCY STRATEGIST,WESTPAC BANKING CORPORATION,SYDNEY
Unfortunately for the rupee,this is not a great environment to run a current account deficit and thus be reliant on capital inflows from foreign lenders. New highs on USD/INR mean fresh air to the top side.
Net foreign purchases of Indian equities YTD $8.8 billion means lots of capital could be pulled from India if the mood doesn’t improve. A rare positive is lower oil prices.
Suspect only radical steps by RBI – or sudden action by foreign central banks and/or G20 – will stop a push through 55 and quite possible higher.
DEEPAK KUNDU,DEALER FX AND RATES,ING VYSYA,MUMBAI
I think the rupee is likely to touch 56 to the dollar by June-end. As of now,the only support can come from the Reserve Bank of India. There is no dollar supply in the market and exporters are not selling.
INDRANIL PAN,CHIEF ECONOMIST,KOTAK MAHINDRA BANK,MUMBAI
The stress on Indian currency deriving out of the worries from the global conditions have increased significantly. The issue now focuses squarely on capital flows and if a heightened risk aversion globally would significantly lead to a drying up of the capital flows.
Significant firming of the dollar is also adding to the rupee depreciation pressures. Attempts by the RBI to contain rupee depreciation is only likely to worsen rupee liquidity conditions. A difficult scenario presently for the policy makers.
ASHTOSH RAINA,HEAD OF FOREIGN CURRENCY TRADING,HDFC BANK,MUMBAI
The level of 55 rupees to a dollar is very much possible. The RBI can intervene strongly. But,for the rupee,given the global environment,and the dollar strength,RBI can contain the fall,but not control it.
RADHIKA RAO,ECONOMIST,FORECAST PTE,SINGAPORE
Given the one-sided bias in the markets,there was little that the central bank could unilaterally do,especially as EUR/USD is tumbling fast and stark losses in the stock markets.
USD/INR in unchartered territory,approach of 55.00 doesn’t seem too distant.
India’s central bank accepts that it is fighting a losing battle in trying to stem a fall in the rupee,a slide that has mirrored the slump in the once high-flying emerging market. The force of dollar demand is such that the Reserve Bank of India can do little to check the fall,central bank officials say.
What more can the Reserve Bank of India do to support the rupee?
The rupee will hover near record lows against the dollar for the next month or so,but a further significant fall is unlikely following a near 10 percent slide in the currency since February. The currency is expected to appreciate gradually after June to around 50 by March 2013,a Reuters poll of more than 20 respondents shows.
Oppn fears repeat of 1991 as rupee touches record low
As the rupee touched a record low,opposition today questioned the government in the Lok Sabha on the steps being taken to tackle the situation as it feared that there could be a repeat of 1991,when India saw severe balance of payments problem and even had to mortgage gold.
“The crisis in our economy is growing. Are we heading towards 1991,” senior BJP leader Murli Manohar Joshi said during Zero Hour,adding the situation was becoming backbreaking for the common man due to price rise.
Expressing concern over rising prices and a falling rupee in the international market,Joshi wondered whether the economic meltdown of US followed by that of Europe was now taking India in its grip.
Rupee took a severe beating today to touch a record low of 54.46 vis-a-vis Dollar after a spurt in capital outflow and problems in bourses over Eurozone crisis.
Seeking to know what steps the government was taking to tackle the serious situation,he said the decreasing value of the rupee meant devaluation of the work by the Indian labour.
Joshi wanted a discussion on the issue as he doubted government’s claims that the fundamentals of the economy were strong.
He recalled that the Economic Advisor to the Finance Minister had recently said that economic reforms were not likely before 2014 Lok Sabha elections.
Joshi insisted that petrol and gas bills have gone up and sought to know what was being done by the government to bring the economy on track again.