Despite so many measures taken up by the Government and Reserve Bank of India over the weeks, rupee continues in a state of free fall as the domestic currency on Monday recorded the decade’s worst single-day fall of 148 paise and closed at 63.13 against US dollar. With rupee closing past even 63, experts say, more capital control steps could be in the offing.
Tracking the currency slide, stock market also fell by almost by about 460 points intra-day, or 2.47 per cent, and finally closed at 4-month low of 18,307.52, down 291 points . The wider index Nifty closed down by 1.69 per cent low at 5414.75 after hitting an intra-day low of 5360.65.
The Indian Benchmark indices continued to trade in red territory for the second consecutive day. “The investor sentiment dampened further as there was no concrete measure announced by the Government or the Central bank,” said experts.
The rupee was down by more than 1.6 per cent during the day. Despite such a massive weakness in rupee, there was no sign of central bank’s intervention in the forex market.
“The host of measures taken by the central bank in recent weeks has failed to revive the sentiments. Problems on the domestic front and global uncertainties are putting severe pressure on the rupee,” said India Forex Advisors Founder & CEO Abhishek Goenka
“The rupee is seen continuing breaking its record every now and then breaching the key psychological levels, thereby leaving the investors clueless,” added Goenka.
Market experts said with no data from the US side on Monday, the dollar continues to suffer from the doubts regarding the taper and the markets may not get any additional clarity on that issue until the release of the FOMC minutes this Wednesday. “Sensex tumbled by 1,000 points in last two sessions signalling sharp weakness in the markets.
On the global front, US treasury yields are increasing, the US dollar is trading flat and locally, Indian bond yields are also increasing which indicates that currently the markets are quite directionless. This calls for a cautious approach,” advised Goenka.
Through the last month, policy makers have taken multiple steps that included measure taken by the RBI on July 15 to drain out cash from the system along with raising short-term interest rates. RBI again announced capping of investments of Indian citizens and companies in overseas markets and also reduced the overseas direct investments (ODI) from 400 per cent of net worth to just 100 per cent of the net worth. Central bank also banned imports of gold coins and made it mandatory for domestic buyers to pay cash for the precious metal.
On the other hand, FM has been busy tackling the ever rising current CAD which stood at 3.6 per cent during January-March quarter. With all the measure falling short, prime concern now is that if the currency continues to fall, country’s CAD would only rise rather than falling to $70 billion, the number which FM had assured to achieve by the end of FY14. And if the Government is not able to contain CAD, hope of getting fresh investments from overseas remains bleak.