The rupee plunged over 100 paise on Monday despite assurances by the Finance Ministry over the weekend that measures will be taken to fund the trade gap.
Persistent month-end demand for the greenback from oil refiners and the Defence sector coupled with arbitrage opportunities in the non-deliverable forward (NDF) market saw the domestic unit end the day at 64.32 to the dollar against the previous close of 63.30.
The RBI is believed to have stepped in to support the rupee by selling dollars through state-owned banks after it tested an intraday low of 64.73/$.
“In the current market circumstances, neither fundamental nor technical analysis will help in predicting a level for the rupee,” said a dealer with a state-run bank. The rupee value at times is influenced by trading in NDF — foreign exchange derivative instruments traded over-the-counter that are based on non-convertible currencies, such as the rupee and traded in international financial centres, according to the RBI.
Forex dealers said the arbitrage between the NDF and the onshore market on Monday was about 8-10 paise, that is, market players bought dollars in the domestic market and sold in the NDF market.
G. Chokkalingam, Chief Investment Officer, Centrum Wealth, in a report said the central bank is in the midst of a perfect storm, with lack of resources to support the rupee and facing an adverse macroeconomic situation.
In a bid to promote exports and augment dollar inflows, the RBI said with the Government increasing the rate of interest subvention from 2 per cent to 3 per cent with effect from August 1, banks may reduce the interest rate chargeable to exporters.