Rupee has for the first time breached the psychological level of 60 against dollar and closed at 60.72 level clearly indicating tough days ahead for the economy and common man alike.
While weakening rupee will further aggravate our Current Account Deficit (CAD), which widened to a record 6.7 per cent of the GDP during October-December, 2012, common man will be severly hit as consequent fuel hike will have cascading effect on items used on daily basis including foreign trips.
Rupee hitting lifetime low also affected stock markets as Sensex lost 77 points and closed at 18,552.12, while Nifty dropped 20.40 points to end below the key 5600-mark at 5,588.70 due to renewed concerns over FII outflows. But giving some respite to average consumers, gold prices fell by Rs 801 to Rs 25,758 per 10 gm in futures trade on Wednesday on selling pressure amid a steep fall in overseas markets. Selling pressure gathered momentum on reports that gold prices had a great fall in international markets.
The rupee was seen weakening against the US dollar since last couple of weeks after the Fed’s announcement. Huge debt outflows from the debt markets put great pressure on the rupee and the domestic currency touched an all-time intra-trade low of 60.76 and finally ended at 60.72, a steep fall of 106 paise. On June 10, 2013, it had tumbled by 109 paise. “ It has depreciated by almost 7 per cent in the current month. The slump in the rupee is majorly attributed to the huge outflows from the debt market in the current month. The strong gains in the US Dollar and sharp weakness in the Euro is also contributing to the huge losses in the rupee,” said Founder & CEO of India Forex Advisors Abhishek Goenka.
Weakening rupee has also cast it shadow on RBI’s policy as the current scenario, experts say, is not opportune for the central bank to cut rates. “Given the current economic dynamics, the likelihood of the RBI lowering interest rates is less as the Rupee has depreciated significantly and lowering of rates could cause increase in inflationary pressures,” said Reena Rohit of Angel Broking.
FIIs pulled out nearly Rs 550 crore from stocks, taking the June outflows to about Rs 9,000 crore. In debt segment, they have pulled out Rs 27,850.20 crore till June 25. Experts said central bank intervened in early trade but no tangible result. “The fact that the currency has crossed the psychological 60-mark shows that the currency situation may not be under the control of the central banker and it would rather move on account of developments happening on the global front and its impact on the Indian economy,” added Reena.
At the same time experts don’t see any respite for the domestic currency and say it could further weaken going ahead. “The rupee in the near-term is expected to test 62 and could further weaken to levels around 64 and strengthening of the Dollar Index will mainly act as major factor to further weakness in the currency,” she added.
The rupee, which is the second worst hit among the major emerging market currencies after the South African rand as the US dollar has been rallying to historic highs, has lost nearly 12 per cent since May and 7 per cent in June itself.
According to traders, the RBI sold dollars more than once in the day through state-run banks as soon as the rupee was trading at 59.985-mark, which was the previous all-time intra-day low recorded on June 20. But the efforts seem to have had little impact on traders who have been bearish on the unit for quite some time, said a forex expert.
N S Venkatesh, Treasury Head, IDBI Bank said: “Sharp movement in rupee was due to short-covering after the domestic currency touched 60 level. I think, rupee would remain under pressure in the near-term till flows come back.”
With the economic logic for overseas funds to invest in Indian fast vanishing as rupee weakens and the US treasury yield rises, outflows are expected to continue.Going ahead, if rupee sustains above 60 levels against the dollar on a closing basis, then there is a possibility that it might hit the next technical key level of 61 soon, experts said.
Meanwhile, premium for forward dollar closed slightly lower on fresh receipts by exporters. Benchmark six-month forward dollar premium payable in November softened to 152-1/2-154 paise from Monday’s close of 153-155 paise. Far-forward contracts maturing in May also declined to 313-315 paise from 315-1/2-317-1/2 paise.