Indian rupee posts biggest weekly gain in 20 months as RBI stands aside

Indian Rupee eases to hit a low of 44.69 per dollar

The rupee dropped to its lowest level in more than 17 months in volatile trade on Tuesday, shrugging off heavy central bank intervention as the dollar rallied strongly against a basket of currencies. The partially convertible rupee closed at 44.38/44.39 per dollar, half a percent down from Monday's close of 44.17/18.

Dealers said a combination of capital outflows from the stock market, stop-loss positions being triggered and heavy dollar buying by oil refiners pushed the rupee down, adding the local unit could hit 45 per dollar in the next couple of days.

The rupee traded in a broad 44.14-44.56 per dollar band, and the day's trough was the rupee's lowest since March 5, 2007, when it touched 44.6950. Currency markets are closed on Wednesday for a holiday and trading resumes on Thursday.

At its low, the rupee has fallen 1.4 percent in the first two days of the month. It fell 3.1 percent in August and is down more than 11 per cent in 2008, making it one of Asia's worst-performing currencies. It rose more than 12 per cent in 2007.

"Dollar demand is huge and the supply pipeline is very thin as most exporters have sold their receivables and capital inflows have all but dried up," said J. Moses Harding, head of global markets at IndusInd Bank in Mumbai. Foreigners have sold more than $7.3 bn in local shares so far in 2008 pushing the stock market down by more than a quarter.

They bought a record $17.4 bn in 2007. A widening trade deficit added to funding concerns. The trade deficit in July was $10.8 bn, expanding from $9.8 bn in June. For April-July, the first four months of the fiscal year, the deficit widened to $41.23 bn between April-July from $27.35 bn a year earlier.

Central bank dollar sales between 44.20-44.55 ensured the rupee closed above its intraday lows. Five dealers at different banks estimated the central bank had sold between $1-$2 billion in the spot market, its biggest intervention in months.

One-month offshore non-deliverable forward contracts were quoting at 44.55/44.65, weaker than the onshore rate. In the futures market, more than 42,000 contracts were dealt with the near-month contract leading the way. It closed at 44.5450 per dollar.

Two dealers said some stop-losses bunched around the 44.40 per dollar levels helped the rupee lower. R.K. Gurumurthy, head of financial markets at ING Vysya Bank, said a clean break above 44.40 would be bullish for the dollar/rupee

Rupee extends losses on RBI governor remarks

The rupee extended losses on Tuesday after the RBI Governor said special market operations with oil companies are ceasing, sparking concern the firms will buy more dollars from the market.

At 4:15 pm the partially convertible rupee was at 42.73/74 per dollar, off an high of 42.5150 and weaker than 42.55/56 at close on Monday.

The central bank since May 30 has been providing foreign exchange to oil companies to pay for their crude imports by exchanging oil bonds held by them, which it plans to stop.

"The special market operations that we have undertaken in terms of oil bonds from IOC (Indian Oil Corp) and other oil companies, I think we have already told them that the facility is ceasing," RBI governor Yaga Venugopal Reddy told a news conference following the quarterly policy review.

Shares fell 3.9 percent on Tuesday, to its lowest close in 10 days, on concerns an unexpected aggressive monetary tightening by the central bank to quash double-digit inflation would slow economic growth.

Foreign funds have sold a net $6.6 billion worth of Indian shares so far this year, after having bought a record $17.4 billion in 2007.

RBI raised its key lending rate for the third time in two months on Tuesday, taking it to its highest in seven years to quell price pressures, dampen demand and keep inflation expectations in check.

The central bank raised its short-term lending rate, known as the repo rate by 50 basis points to 9 percent and increased the cash reserve ratio, or the amount of deposits banks have to keep with it, by 25 basis points to 9 percent

Rupee seen at 42.50 per US Dollar by end 2008: HSBC

The rupee may rise to 42.50 per dollar by the end of 2008 as the Reserve Bank of India's determination to cap the local unit's weakness was broadly in line with its policy stance and supported its efforts to fight inflation, HSBC said in a recent note.

HSBC estimated the Reserve Bank of India (RBI) unwound about $4.5 billion of forex reserves in June to curb the rupee's fall.

"Though the scale of intervention to ameliorate the weakening currency is unprecedented, this intervention policy is likely to be sustainable at least in the coming months," HSBC said.

India's foreign exchange reserves fell to $308.397 billion in early July from $315.660 billion at the beginning of June.

But HSBC warned that near-term fundamentals still did not favour the rupee, with recent political developments adding to adverse factors.

A median of a poll of 12 traders and economists earlier this month showed the rupee would be at 43 per dollar by the end of December, pressured down by record high oil prices and outflows of foreign funds from the stock market.

HSBC was not part of that poll. At 1:07 p.m., the partially convertible rupee was at 42.83/84 per dollar, stronger than its previous close of 43.87/88. It hit a 15-month low of 43.50 earlier this month.

Rupee rises as stocks rebound

Rupee rose on Wednesday, recovering from 15-month lows on the back of a 5.4 per cent surge in the stock market, but high crude prices may continue to exert downward pressure on the local unit. The partially convertible rupee ended at 43.17/18 per dollar, off a low of 43.39 and 0.4 per cent stronger than Tuesday's close of 43.34/36,trimming its losses for the year to 8.7 per cent.

On Tuesday, it had weakened as far as 43.50, its lowest since early April 2007. Once the stock market started rallying, banks who were sitting on long-dollar positions started unwinding them.

"The central bank does not seem to be trying to defend any particular level on the rupee now, so it will be directly related to the stock movement and oil prices." Beaten-down Indian shares rose 5.4 per cent on Wednesday, their biggest gain in more than three months, as investors picked up bargains after the market had fallen more than 10 percent in three days, but analysts said high oil prices and political stability were concerns.

Foreign funds bought $43 million of stocks on Tuesday, but are net sellers of $6.5 billion so far this year. Oil, India's biggest import, steadied near $141 a barrel on Wednesday, not far from a record high.

Traders said offshore-related arbitrage dollar buying, which was a major factor in the rupee's 0.7 per cent fall on Tuesday, was barely seen on Wednesday, easing some of the pressure. One-month offshore non-deliverable forward contracts were at 43.62/72 per dollar, weaker than the onshore rate.

Indian Rupee Falls on Concern Global Funds to Reduce Investment

India's rupee fell for a second day on concern that declining local stocks will prompt global funds to slow investment in the country.
The currency dropped to the lowest in two weeks as India's benchmark share index extended yesterday's biggest loss in four months. Signs that credit-market losses tied to U.S. subprime mortgages will slow global economic growth prompted investors to sell higher-yielding assets.
``Sentiment on the rupee is a bit weak,'' said Vikas Babu, a currency trader at state-owned Andhra Bank Ltd. in Mumbai. ``The weakness across Asian stock markets has raised concerns about possible capital outflows.''
The rupee weakened 0.1 percent to 39.565 per dollar as of 10:40 a.m. in Mumbai, according to data compiled by Bloomberg. The currency dropped 0.5 percent yesterday, the biggest decline in two months. It may fall as low as 39.7 today, Babu said.
The Bombay Stock Exchange's Sensitive Index fell for a fourth day after dropping 3.8 percent yesterday, its largest decline since Aug. 16. The MSCI Asia Pacific Index of regional shares lost 0.3 percent.
The rupee's 11.9 percent gain this year, the second-biggest among Asian currencies after the Philippine peso, was fueled by record purchases of stocks and bonds by global investors. Overseas investors more than doubled Indian equity purchases to an all-time high of $17.2 billion this year and debt investments reached $2.02 billion, the highest ever.

Rupee remains sluggish against dollar

The rupee on Tuesday remained sluggish and was down at 39.5550/5650 against the US currency in late morning deals in line with weak trend in equity markets and firm dollar overseas. In fairly active trade at the Interbank Foreign Exchange (Forex) market, the domestic unit opened lower at 39.63/64 a dollar against yesterday's close of 39.54/55 per dollar. Dealers attributed initial sharp fall in the rupee to bearish equity markets where the benchmark Sensex was down by over 130 points at initial stages. But smart recovery in the index in late morning deals helped the rupee recover some lost ground and was quoted at 39.5550/5650 a dollar. Foreign Institutional Investors (FIIs) sold shares worth Rs 2,151 crore in cash segment on December 17 as per provisional figures, which also weighed on the rupee. Meanwhile, the dollar advanced several multi-month highs against its major rivals on Monday on the back of dollar- positive data that weakened US stocks and boosted the yen.

Indian Rupee eases on weak Asia, but losses capped

The rupee eased slightly on Monday, hurt by declines in most Asian currencies on waning prospects of further rate cuts by the US Federal Reserve, though dollar selling by a private-sector bank capped losses. At 9:45 am (0415 GMT), the partially convertible rupee was at 39.35/36 per dollar, just softer than the previous close of 39.34/35 per dollar on Friday, which was its strongest finish since Nov. 19. The rupee hit a near-decade high of 39.16 last month. "The negative cues from dollar-Asia and other equity markets are what people are looking at, but the rupee is not likely to be affected as much as other Asian currencies," said the chief dealer with a foreign bank. Asian shares fell on Monday after surging US inflation and high oil prices fanned concerns the Federal Reserve may be unable to make deeper cuts to prevent a possible recession. Still, dealers said that elevated overnight interbank interest rates would limit the rupee's losses, as banks may pare dollar holdings to tide over tight cash conditions. Call rates were trading at 7.70-7.80 per cent, higher than the 6 per cent when cash conditions are normal. Adding to the tentative mood were concerns India's central bank would block any rapid appreciation in the rupee, which has gained over 12 percent this year. The Reserve Bank of India bought $64.5 billion in intervention in the first 10 months of the year.



Courtesy to
The Economic Times