Global risk aversion dragged the rupee to a fresh all-time low of 56.56 on Thursday, as investors shed risky assets and the dollar strengthened. Spot intervention by the central bank helped the rupee pull back, but dollar buying by oil companies and foreign institutional investors led the currency to register a record low close of 56.31 a dollar, as against yesterday’s close of 56.15.
The rupee had fallen to 56.52 against the dollar on May 31. Yesterday, the US Fed said it had lowered the US economic growth projection in 2012 to 1.9-2.4 per cent from the 2.4-2.9 per cent expected earlier. The dollar index, which measures the currency against six major currencies of the world, had risen to 81.74 on Thursday from 81.58 a day before.
FIIs sold Rs 1,763 crore from Indian equity markets on Thursday, according to data from the Bombay Stock Exchange. The net outflows were Rs 257 crore. Both equity markets closed with 0.8 per cent gains. Traders said the Reserve Bank of India (RBI) sold dollars around Rs 56.45 apiece in early trade and later around 56.56. “The intervention would be $200-300 million and it was not sufficient to meet dollar demand in the market,” said a foreign exchange trader with a private bank.
On Tuesday, RBI Governor D Subbarao had said the central bank would continue with the policy of intervening only to smoothen volatility in the foreign exchange market. He said the rupee depreciation was on the back of both global and domestic factors. He said in August-December, the currency had depreciated on the back of global risk-aversion and appreciated in the next phase of January-February due to measures taken by RBI.
The Indian currency has lost 10 per cent since the start of the current financial year. It is expected to stay weak. Taimur Baig and Kaushik Das, economists at Deutsche Bank, said, “RBI recognises the rupee’s prospects would depend on global risk appetite and the sustainability of capital flows to India and, hence, the central bank is unlikely to push for a much stronger exchange rate.”