The rupee fell for the third consecutive day to touch a four-month low, as importers rushed to cover short-term exposures amid a modest intervention by the central bank.
Worsening macroeconomic scenario and policy uncertainty, leading to weak foreign fund inflows, also pushed the rupee to levels last seen in December 2011.
The Reserve Bank of India (RBI) intervened in the foreign exchange market for the second consecutive day, but the effort was seen as inadequate. However, the intervention arrested the fall in the domestic currency to some extent.
On Thursday, the rupee closed at 53.41 per dollar after touching an intra-day low of 53.47 and a high of 53.12. On Wednesday, the rupee had closed at 52.96.
“Importers are covering for short term as well as for three months and six months, whereas exporters are going slow. Hence, there is pressure on the exchange rate,” said Abhishek Goenka, chief executive officer, India Forex Advisors.
Apart from the usual high requirements of oil companies, dollar demand was seen from companies redeeming their external commercial borrowings. Market participants said the RBI intervention was seen at 53.45 per dollar levels.
“There is high demand but low dollar supply. Foreign fund inflows are needed to help rupee rebound. Even dollar weakening against other major currencies is not helping the rupee,” said Sandeep Gonsalves, forex consultant and dealer at Mecklai & Mecklai.
The dollar index against six major currencies of the world was at 79.13 on Thursday as compared with 78.88 on Tuesday.
According to data from the Bombay Stock Exchange, foreign fund inflows were just Rs 73 crore in the domestic equity markets that closed in the red on Thursday.
Dealers said public sector banks sold dollars, which pulled back the Indian currency from the day’s low. RBI has sold a little over $20 billion between September 2011 and February 2012 and had introduced a host of regulatory measures that helped the rupee stabilise since January. However, since end of February, the currency has started to weaken again against the greenback.
“The strong gains in the Indian rupee witnessed in early 2012 have faded, with USD-INR rebounding in late Q1 in line with our expectations. The key to this shift in sentiment has been the prospects of limited monetary easing in FY13 due to upside inflation risks and the weak attempt at fiscal consolidation outlined in the FY13 Budget,” Standard Chartered Bank said in a research report.
Apart from weakening macroeconomic fundamentals, policy issues, such as tax-related uncertainties due to the scheduled introduction of General Anti-Avoidance Rules this year have not helped the situation.
Since the start of this financial year, the rupee has lost five per cent against the greenback, mainly on account of rising concerns on the domestic economic outlook. The domestic currency had staged a recovery to 48-49 per dollar levels in January 2012 on account of various limitations imposed by the RBI in the foreign exchange market. “The rupee is depreciating despite most of the restrictions still in place,” said the treasury head of a large public sector bank.