Mumbai : The Indian rupee hit a life-time low yet again yesterday amid strong dollar demand from foreign banks, but the currency pared some of its losses later in the day following a Reserve Bank of India (RBI) intervention, dealers said.
The rupee has been the worst performing Asian currency this year. Despite strong GDP growth, the currency has weakened about 12 percent this year amid higher oil prices and a broad sell-off in emerging markets, widening India’s current account deficit and a worsening balance of payments that slipped into the red in April-June for the first time in six quarters.After opening on a stronger footing on Tuesday, the rupee weakened to a record low of 72.75 to the dollar. It recovered some of its losses to close at 72.7075 after the RBI likely sold dollars in the market to stem the weakness.
“There is no point in predicting a range for the rupee at the start of the day,” said the chief forex dealer at a state-run bank. “Nowadays no prediction on the bottom of the rupee works.” Indian bonds also fell tracking a weaker rupee, which could stoke inflationary pressures given the rising cost of crude oil and other imported commodities. The 10-year benchmark bond yield rose to 8.19 percent, its highest level since Nov. 17, 2014.
Another forex dealer said it appears that some banks are selling bonds to get rupee funds for buying dollars. “This is adding to the (dollar) demand and pushing the rupee down further,” said the dealer at a state-run bank. Foreigners have sold a net $6.5 billion so far this year with most of the outflows in debt markets where investors have seen heavy mark-to-market losses due to the plunging rupee. Going forward, investors will closely watch the central bank’s policy moves and its stance on rupee intervention, traders said.