Despite breaching the 64 levels against the American dollar, the rupee ended at a new low of 63.23 against the dollar after the Reserve bank of India intervened by asking banks to sell dollars into the market.
Though market focused on the dollar, the Indian currency also surpassed Rs 100-mark against the British pound to a fresh low of Rs 100.35 making Pound the most expensive currency for the rupee.
The unstoppable rupee on Tuesday tumbled to a life-time low 64.11 per dollar in the early trades due to heavy capital outflows from the domestic equity market.
“Due to lack of inflows and foreign investors pulling out of the emerging markets, the rupee continued to fall,” said a forex dealer with a public sector bank.
Moreover, a stronger American currency and concerns over funding the current account deficit (CAD) amid heavy outflows by foreign investors from emerging markets weighed on the rupee sentiment.
In addition, JP Morgan downgraded India to ‘neutral’ from ‘overweight’ citing strain in balance of payments. This could further weaken the country's sentiment for foreign investors.
Rafeeque Ahmed, President, Federation of Indian Export Organisations (FIEO), said this is temporary phase and that the rupee will strengthen looking at the bright export prospects in the coming months. “Improvement in overall economic parameters in US and modest growth in Europe in the last quarter (after four consecutive contractions) would help India’s exports which may clock 20 per cent growth from October onwards,” he said.
Exporters should use the rupee depreciation to augment exports by cutting down their prices to out price their competitors, Ahmed added.
Breaching the 63 level on Monday, the domestic unit had closed at 63.13 after hitting a low of 63.30 against the dollar.
On Tuesday, the unit opened at a fresh new low of 63.75 and extended its losses in the early trades raising serious concerns for the Government and the Reserve Bank of India.
“However, it recovered to 63.12 in the afternoon trades after RBI stepped in. There was also some forward selling of dollars by the major public sector banks,” the dealer added.
Currencies of emerging economies such as South Africa, Brazil and Indonesia among others have also been under pressure due to outflows after the US central bank indicated that it would start withdrawing its monetary easing policy as the US economy starts recovering.
Meanwhile, the BSE-benchmark Sensex dipped below 18,000 levels by shedding 310 points (1.7 per cent) in early trades. However, it recovered, though, ended lower at 61 points at 18,246 points.
G-secs rises; Call rates marginally up
The benchmark 7.16 per cent government security, which matures in 2023, closed higher at Rs 88.78 from yesterday’s close of Rs 86.87. The yields on the security softened to 8.90 per cent from 9.22 per cent.
In the morning trades, the bond prices fell sharply to Rs 85.45, while the yields had risen sharply to 9.48 per cent.
A rise in the yields on G-Secs is likely to have negative impact on the margins of banks due to their investments in government securities.
The call money rate, rate at which banks borrow from each other for short-term funding, a tad higher at 10.30 per cent from Monday’s close of 10.25 per cent.