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Rupee slips to 28-month low

Erodes gains made during Modi regime

MUMBAI: The rupee plunged to its lowest level in the last 28 months as persistent outflow of funds from local equities and increased demand for dollars from importers amidst broader weakness in emerging market currencies impacted sentiments. The rupee breached its psychological 67 level mark against the US dollar on Thursday and closed the session at 67.29, lowest level since September 4, 2013. This fall erodes all gains that the rupee made during the Narendra Modi government, though India is on a firm footing now compared to the period when Mr Modi became the Prime Minister.

While forex experts foresee a near-term weakness in the rupee in the wake of volatile global markets, they expect the local currency to gain strength in the medium term tracking domestic fundamentals. “We continue to expect the RBI to anchor Rs 65 a dollar expectations given that Dr Raghuram Rajan has indicated the rupee’s fair value at Rs 62-64/dollar. We now think that the RBI will anchor rupee expectations at Rs 65/dollar although it will have to allow breaches — such as now — in view of extreme global volatility,” said analysts at Bank of America Merrill Lynch in a note to its clients.

Apart from uncertainty in the emerging markets, the strengthening dollar is also inflicting pain on other currencies. According to Bloomberg, its Dollar Spot Index climbed about 24 per cent since July 2014 as investors started betting on the growth revival in the US. However, the rupee fares much better compared to the currencies of other emerging markets, except China. According to forex dealers, the sudden fall in the rupee below the psychological 67 level against the dollar triggered some amount of panic buying from importers. “During the last few weeks, the Reserve Bank was seen intervening in the market when the rupee traded at 66.90/66.95 levels against the dollar. However, the sudden fall in the rupee below its psychological 67 level mark caused panic in the market. This led to an increase in dollar buying from importers in anticipation of further weakness in the rupee,” said Hemal Doshi, chief currency strategist at Geofin Comtrade.

According to the news agency Reuters, RBI might have intervened on Thursday by selling over $500 million to limit the rupee's losses.
“The global events are putting pressure on the rupee. The Indian currency could drift further down to 67.50 per dollar in the coming days. However, we believe that RBI would intervene at those levels and provide some kind of support to the local currency,” said M.P. Hariprasad, head of treasury, Centrum Broking.

On Friday, the equity markets also remained under pressure as foreign portfolio investors (FPIs) turned heavy sellers following subdued sentiments in the global markets. According to the provisional data, FPIs sold equities worth '1,221.97 crore. While the Sensex dropped 81.14 points, the Nifty lost 25.60 points.

The rupee plunged to its lowest level in the last 28 months as persistent outflow of funds from local equities and increased demand for dollars from importers amidst broader weakness in emerging market currencies impacted sentiments. The rupee breached its psychological 67 level mark against the US dollar on Thursday and closed the session at 67.29, lowest level since September 4, 2013. This fall erodes all gains that the rupee made during the Narendra Modi government, though India is on a firm footing now compared to the period when Mr Modi became the Prime Minister.

While forex experts foresee a near-term weakness in the rupee in the wake of volatile global markets, they expect the local currency to gain strength in the medium term tracking domestic fundamentals. “We continue to expect the RBI to anchor Rs 65 a dollar expectations given that Dr Raghuram Rajan has indicated the rupee’s fair value at Rs 62-64/dollar. We now think that the RBI will anchor rupee expectations at Rs 65/dollar although it will have to allow breaches — such as now — in view of extreme global volatility,” said analysts at Bank of America Merrill Lynch in a note to its clients.

Apart from uncertainty in the emerging markets, the strengthening dollar is also inflicting pain on other currencies. According to Bloomberg, its Dollar Spot Index climbed about 24 per cent since July 2014 as investors started betting on the growth revival in the US. However, the rupee fares much better compared to the currencies of other emerging markets, except China. According to forex dealers, the sudden fall in the rupee below the psychological 67 level against the dollar triggered some amount of panic buying from importers. “During the last few weeks, the Reserve Bank was seen intervening in the market when the rupee traded at 66.90/66.95 levels against the dollar. However, the sudden fall in the rupee below its psychological 67 level mark caused panic in the market. This led to an increase in dollar buying from importers in anticipation of further weakness in the rupee,” said Hemal Doshi, chief currency strategist at Geofin Comtrade.

According to the news agency Reuters, RBI might have intervened on Thursday by selling over $500 million to limit the rupee's losses. “The global events are putting pressure on the rupee. The Indian currency could drift further down to 67.50 per dollar in the coming days. However, we believe that RBI would intervene at those levels and provide some kind of support to the local currency,” said M.P. Hariprasad, head of treasury, Centrum Broking.

On Friday, the equity markets also remained under pressure as foreign portfolio investors (FPIs) turned heavy sellers following subdued sentiments in the global markets. According to the provisional data, FPIs sold equities worth Rs 1,221.97 crore. While the Sensex dropped 81.14 points, the Nifty lost 25.60 points.

( Source : deccan chronicle )
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