LM:Rupee slides past 68 against dollar on India downgrade fears
The rupee weakened sharply against the US dollar after rating company Standard and Poor’s said the chances of India’s rating downgrade remain and are “higher” than other emerging markets such as Indonesia.
The negative outlook on India remains, S&P credit analyst Kim Eng Tan said in Seoul. “We have a negative outlook on India, which means that over the next one to two years we think chances of downgrades are more than one in three,” Tan said. “What I can say is that for India, chances of a downgrade are higher than Indonesia,” Tan was cited as saying by Bloomberg.
The rupee, which had opened weak on Tuesday, fell further following the comments as dealers covered their dollar positions on renewed fears of a rating downgrade of India.
At 2.30pm, the rupee was trading at 68.13 per dollar, down 3.1% against its previous close of 66.02. It had opened at 66.275 a dollar.
Since January this year, the rupee has weakened 19.06% and has lost the most among Asian currencies during that period.
The US dollar index, which measures the dollar’s strength against major currencies, rose 0.28% to 82.318.
India’s interbank overnight call money rate was trading at 10.15% compared with the previous close of 10.25%. It opened at 10.35% and touched a high and a low of 10.35% and 10.15%, respectively.
“The drop in the local stock market has also impacted the sentiment on the rupee. Dollar sales from state-owned banks are also sporadic, which has not helped the currency,” said a dealer with a private sector bank.
India’s benchmark Sensex fell 2.84% to 18,349.32 points.
The yield on the 10-year bond stood at 8.523%, up 0.68% from the previous close of 8.468%. It opened at 8.324%.
Dealers also bought dollars on expectations that demand from oil companies, which has been taken out of the market, will return once these companies have to pay back dollars to the Reserve Bank of India (RBI).
Last week, RBI opened a foreign exchange swap window to meet the daily dollar requirements of state-run oil marketing companies. Through this window, RBI will sell dollars to these companies for a fixed tenure—probably three months—with an understanding that the fuel retailers will return the dollars on expiry of contracts.
“There is a feeling in the market that oil companies will have to come back to the market to purchase dollars sooner rather than later,” the dealer said.
