Mumbai: The Indian rupee weakened against the dollar on demand for the US currency from importers and companies for foreign currency payments such as interest on external commercial borrowings (ECBs).
After touching an intra-day high of 62.92 per dollar, the Indian currency fell to 63.9625 against the US currency on Thursday, before ending the day at 63.54 per dollar, down 0.27% from the previous close of 63.3650 per dollar.
“Even though demand from oil companies is not there, there are other importers who were buying today. The weakness in the local stock market also forced banks to cover their dollar positions,” said a dealer with a French bank.
The benchmark Sensex fell 1.08% on Thursday to end at 19,781.88 points as foreign funds stayed away from the equity markets.
The rupee had gained 6.89% between 4 September and 11 September from 67.73 per dollar to 63.37 per dollar before the drop on Thursday.
Aman Mahna, senior forex dealer with FirstRand Bank Ltd, said demand was weak mostly for interest payments linked to ECBs of Indian companies, however, dollar inflows in the stock market which had supported the rupee in the last one week were thin on Thursday.
“The rupee is tracking the equity markets. Traders are also not taking a big position ahead of industrial production and consumer price inflation data due after market hours,” Mahna said.
Radhika Rao, India economist with DBS Bank Ltd, said she expects India’s industrial production to contract 0.5% in July, slower than a 2.2% contraction in June.
“Trend-wise, industrial production shows no clear changes. Despite the upturn in the core industries index in July, the weakness in mining and manufacturing have been notable in recent months,” Rao said in a note on Thursday.
She expects consumer prices to accelerate to 9.7% in August from 9.55% between April and June 2013 mainly due to higher international crude prices, rupee depreciation and an upward adjustment in the administered fuel prices this year.
Traders are also cautious ahead of the Federal Open Market Committee (FOMC) meet on 18 September which will give directions on the timeline for the possible tapering of US’s multi-billion dollar bond purchase programme.
The RBI will also detail its mid-quarter monetary policy review on 20 September.
Since January, the rupee has weakened 13.81% against the dollar and has lost the most among Asian currencies during that period.
The dollar index, which measures the US currency’s strength against major currencies, was trading at 81.52, up 0.01% from the previous close of 81.518.
The yield on the 10-year government bond rose to 8.5%, up 3 basis points from the previous close of 8.471%. It opened at 8.459% and touched a low of 8.426%.
The overnight call money rate was at 10.2%, down 0.5% from previous close of 10.25%. It opened at 10.35% and touched a high and a low of 10.4% and 9.75%, respectively.
