LM:Rupee recovers over 1% from all-time low of 68.76 against dollar
Mumbai: The Indian rupee recovered partially on Wednesday afternoon, tracking the recovery in equity markets and speculation that the central bank has intervened to support the currency, after it plunged the most in two decades, surpassing the 68-per-dollar level, on concerns that capital outlows will accelerate.
“The recovery in the equity markets has helped (in rupee’s recovery). There were also signs of RBI (Reserve Bank of India)intervening to support,” a dealer with a foreign bank in Mumbai said. He didn’t want to be named. RBI typically intervenes in the currency market through state-run banks in the event of high volatility.
The rupee recovered more than 1% from its all-time low. At 2.12 pm, the currency was trading at 68.02 against dollar, down 2.68% from the previous close of 66.19. It opened at 66.905 and touched a high and a low of 66.905 and 68.755, respectively.
Stop-loss transactions were triggered near 68.75 per dollar, Bloomberg reported, citing two traders who asked not to be named as the information isn’t public. .
Since January this year, the rupee has weakened 19.17% and has lost the most among Asian currencies during that period. The turmoil in the markets continued after concerns that the US may take military action against Syria and on pessimism in the domestic market that the Congress party-led United Progressive Alliance (UPA) will be unable to control India’s worsening fiscal condition.
Repeated assurances from the government that it is in control of the fiscal situation in Asia’s third-largest economy hasn’t helped in keeping the markets calm, dealers said.
BSE’s benchmark Sensex fell for a second day on Wednesday as worries over a possible US-led military strike against the Syrian government knocked Asian equities to the lowest in seven weeks. The index later recovered by about 2.95% or 514 points from its intra-day low. There were rumours of Life Insurance Corp. of India buying shares in the market, dealers said.
The 30-share Sensex is trading at 18,048.08 points, up 0.45%. The broader 50-share Nifty index on the National Stock Exchange is trading 0.06% down at 5,284.05 points. Bond yields jumped, despite the central bank’s plan to infuse another Rs.8,000 crore in the banking system by buying back bonds.
The yield on India’s 10-year benchmark bond was trading at 8.819%, from its previous close of 8.735%. It opened at 8.948% and touched a high of 9.029%. Bond yields and prices move in opposite directions.
“There are fears about the external situation. FIIs (foreign institutional investors) are taking their money back home. Primarily, this is a panic situation that is impacting the sentiments in the market,” said N.S. Venkatesh, treasurer at IDBI Bank Ltd.
Financial markets are also worried about a likely pressure on the fiscal deficit due to the implementation of proposed food security law, which promises to sell subsidized foodgrain to 67% of India’s population. It is likely to cost the treasury Rs.1.3 trillion a year.
Under the proposed law, each beneficiary will be entitled to 5kg of rice, wheat and coarse grains at Rs.3, Rs.2, and Rs.1 per kg, respectively.
The cabinet committee on investment on Monday cleared 36 projects entailing investment of Rs.1.83 trillion, but the announcement had no positive impact on the markets.
Finance minister P. Chidambaram on Tuesday batted for more reforms, less restrictions and a more open economy to overcome the current economic crisis.
Charting a 10-point agenda to revive the levers of the economy in Parliament on Tuesday, Chidambaram said the immediate priority of the government is to contain the fiscal deficit and the current account deficit in the fiscal year to March. “We will contain fiscal deficit at 4.8% of gross domestic product (GDP) and current account deficit at $70 billion this year,” he said.
