LM:Indian rupee extends slide to near 59 per dollar
Mumbai: The Indian rupee on Tuesday fell further to touch a new record low of 58.94 per dollar after opening at 58.30 on consistent dollar strength against all emerging market currencies.
The rupee may also face pressure in Tuesday’s session from foreign fund sales in debt market.
All eyes are on the Reserve Bank of India (RBI) to see if it steps in to sell dollar and prevent the rupee from falling further.
At 12:01pm, the home currency was trading at 58.94, down 1.37% from its previous close, while India’s equity benchmark Sensex was trading at 19,127.50 points, down 1.61%.
On Monday, the rupee ended at 58.14 per dollar, down 1.84% from its previous close.
Some analysts believed pressure on the currency intensified after comments on the limitations of currency intervention by RBI governor D. Subbarao on Friday.
“Irresponsible comments by policymakers are suggesting there may not be intervention or that intervention may fail,” said Samir Lodha, managing director at QuantArt Market Solutions.
“Fundamentally, the Indian rupee will continue to depreciate because of CAD (current account deficit), but this move has happened too soon and too fast.”
Subbarao said a failed defence of rupee can be worse than no defence, and reiterated that the central bank intervenes in the market only to manage volatility.
Analysts noted that while foreign institutional investors (FIIs) were still net buyers, the risk that they could turn sellers could force the central bank to intervene to at least moderate the volatility.
“The market is in a panic mode. Currently FIIs are still net buyers but if they turn sellers in coming days, in that case only hope will be RBI intervention for stability and with decent reserves, RBI can definitely stabilize volatility,” Lodha said.
The weakness in the rupee has prompted investors to exit their positions in the debt market while the domestic equity market is also under selling pressure.
The rupee has dropped in 16 of the last 18 trading sessions and is down 8.3 percent since the start of May. The currency is the third-worst performer in Asia in 2013.
Traders will be watchful of any central bank intervention to prevent the rupee from weakening further. An absence of intervention by the central bank could push the rupee down to 59 later in the session, dealers said.
“Any respite for the INR from some possible bunched up FII debt and FDI inflows this month will be temporary,” said Rajeev Malik, senior economist at CLSA in Singapore.
“Barring volatility, the rupee will eventually weaken to cross 60/dollar in a sustained manner. Admittedly, this is playing out sooner than we expected because of the earlier change in the global backdrop,” he added.
