The rupee, which has plunged almost 12 percent since June, hit a new low Monday at 61.21 to the dollar, threatening the very fundamentals of the economy and pinching everybody. The Reserve Bank, concerned about the fastest growth in currency derivatives trading in more than three years, has reportedly asking overseas funds to prove they aren’t speculating on the rupee. This has had some
Impact on the rupee as it recovered some lost grounds to close at 60.615, still down 0.62 percent. Fears of the US Federal Reserve winding down economic stimulus spending sooner than expected and weak sentiment in the domestic market sent the rupee tumbling to 61.21 against the dollar earlier in the day. The partially convertible rupee opened at 60.945 against the dollar. This had the equity markets also in a bind as it shed more than 300 points during trade and closed nearly 1 percent down.
The Reserve Bank reportedly sold dollars to slow the rupee’s drop, according to traders . Any dollar sales by RBI will be aimed at reducing market volatility, rather than supporting the exchange rate, as the rupee’s slide is in line with losses in other currencies. The dollar climbed against eight of 11 Asian currencies. “The major reason for the rupee’s weakening is the strengthening of the dollar,” said a dealer. “Also, confidence among investors about any significant improvement in the economic recovery remains low.” The rupee plunge was driven by massive selling FII. In June alone, they sold equities worth about $1.76 billion and debt worth over $6 billion and in July so far they sold equities worth nearly $800 million. So far this year, the rupee has lost 9.94 per cent.
Also, RBI and the nation’s state-owned refiners including Indian Oil are discussing ways to manage dollar demand in a bid to curb rupee volatility. The central bank and the refiners are exploring the possibility of mandating a single state-run bank to sell dollars to the companies, eliminating bids that fuel speculation in the rupee, the person said, asking not to be identified because the matter is confidential. Another option is for the RBI to sell dollars directly to the oil companies, the person said. The rupee slide continued after better-than-expected US jobs data raised concerns about the US Fed easing its stimulus programme.
"After US non-farm payrolls data, the rupee was expected to open with steep losses. However, the RBI was seen selling dollars which helped the local currency recover," said the forex dealer.
A falling rupee has a cascading effect on inflation as imports like oil become costlier, widens the current account deficit and increases the risk of capital outflows. "Expect spot rupee to trade over 62 levels in coming days," said Pramit Brahmbhatt, CEO, Alpari Financial Services. The benchmark Sensex fell 171.05 points, or 0.88 percent, while FIIs sold shares worth Rs 204.46 crore, as per provisional data with the BSE. The dollar index, which was trading at a nearly three-year high, was down by 0.09 per cent against a basket of six major currencies. "The US dollar index was trading at its three-year high and the euro was sustaining near $1.2850 levels, which was making a strong case for the rupee weakness," said Abhishek Goenka, founder of India Forex Advisors.
