* Rupee falls to record low of 64.52/dollar
* RBI took steps to ease cash concerns on Tuesday
* Heavy dollar demand from importers pressuring rupee
(Recasts, adds details, quotes)
By Subhadip Sircar and Swati Bhat
MUMBAI, Aug 21 (Reuters) - The Indian rupee plunged to a
record low on Wednesday on heavy dollar demand by importers and
as traders fretted over mixed signals from the central bank over
its efforts to prop up the currency without choking off economic
The rupee fell nearly 2 percent to a record low of
64.52 to the dollar despite what traders said was sporadic
central bank intervention in both the spot and forward markets.
Measures by the Reserve Bank of India late on Tuesday to
support longer-dated credit sent prices of beaten-down bonds
sharply higher but also led traders to question the central
bank's resolve in defending the currency.
Since mid-July, the RBI has taken steps to tighten cash
conditions, which have failed to support the rupee but sent bond
yields surging, posing a fresh threat to the already cooling
"Currency market and participants may consider it as a
reversal of RBI liquidity tightening measures to prevent
currency volatility; thus some pressure on currency may
re-emerge," said Anjali Verma, economist at PhillipCapital.
With a record high current account deficit at 4.8 percent of
GDP, India is especially vulnerable to funds moving away from
emerging markets in anticipation of a winding back of the U.S.
Federal Reserve's stimulus programme. Traders were looking ahead
for clues from Fed minutes to be released later on Wednesday.
Deutsche Bank said in a note on Wednesday that the rupee
could slide to 70 in a month or so, although some revival is
expected by the end of the year.
The central bank's move to ease cash conditions after
tightening them last month to support the rupee highlights the
growing costs to the economy of stabilising the currency.
"The bearishness seen across markets is largely a reflection
of the fact that there is no quick fix solution to arrest the
rupee fall," said Shakti Satapathy, fixed income strategist at
The yield on the benchmark 10-year bond
tumbled as much as 69 basis points (bps) on Wednesday to 8.21
percent as its price rose. It was last trading at 8.46 percent,
still down 44 bps on the day.
Local stocks turned negative, with the benchmark Sensex
closing down 1.9 percent.
HIGHER BORROWING COSTS
Bond yields had risen 135 bps as of Tuesday's close since
the RBI first started tightening market cash conditions in
mid-July by raising short-term rates to keep rupee speculators
Still, the rupee is down 7 percent since then.
The RBI said late on Tuesday it will buy 80 billion rupees
($1.26 billion) of bonds on Friday and will pare down its cash
management bill sales as its target of pushing up the overnight
rate to the central bank's emergency funding rate of 10.25
percent had been achieved.
The RBI relaxed rules on mandatory bond holdings for banks,
known as the statutory liquidity ratio, which will help protect
lenders from large mark-to-market losses.
While banks had previously been asked to cut their
hold-to-maturity bond holdings gradually to 23 percent of
deposits, the RBI on Tuesday allowed banks to retain them at
24.5 percent of deposits.
(Additional reporting Archana Narayanan; Editing by Tony Munroe
& Kim Coghill)