Rupee touches a record low of 51.90, could slip further

Rupee touches a record low of 51.90, could slip further
The Financial Express, March 3, 2009, Page 1

fe Bureau, Mumbai

India’s largest bank, State Bank of India, on Monday made it more attractive for non-residents to park their dollars in India as the rupee fell to an all-time low of 51.90/92 against the dollar.

The rupee fell as a slump in key economic data, including a five-year low third quarter growth rate, and an arbitrage with offshore derivatives pressured the currency. The rupee had closed at 51.10/12 on Friday. Dealers said despite the Reserve Bank’s intervention, the rupee saw a massive fall against the dollar.

Foreign institutional investors have sold $1.7 billion of Indian shares in the first two months of the year, after selling more than $13 billion last year when the rupee fell more than 19%. The country’s foreign exchange reserves fell $165 million to $249.5 billion in the week ended Feb 20, RBI said in its weekly statistical statement on Friday. The forex reserves have eroded by over $50 billion in the recent past.

Dealers were divided on how the rupee would move now. “With falling stocks, worsening economic data and heavy arbitrage between the onshore and the offshore market, there has been a heavy depreciation in the rupee. However, we think rupee may bounce back to 49.50 levels, against the dollar,” noted NS Venkatesh, MD&CEO with IDBI Gilts. But Barclays Capital said in a report that economic slowdown and a fiscal deficit would push the Indian currency to 56 against the dollar within the next three months.

The short-term outlook for the rupee is also down. The one-month offshore non-deliverable forward contract was trading at 52.28/38, weaker than the spot rate. This, in turn, created an arbitrage opportunity where banks bought dollars in the domestic market and sold offshore, in a bid to make a profit from the price differential. Commtrendz Research in a report said the fact that one-month offshore non-deliverable forward contracts were quoting weaker than the onshore spot rate indicated further weakness for rupee in the near term.

In addition, with the fall in the equity markets leading to a fall in continuous outflows and the economic data showing a slump, importers are buying dollars.

However, bond prices gained after RBI announced a Rs 6,000-crore buyback of government securities on March 5. This was higher than what the markets expected.