Apart from the Japanese yen, all 10 actively traded currencies in Asia fell against the dollar on Thursday as investors rushed to buy dollars to park their money in US treasury bills, supposedly the safest asset class in the world.
The Indonesian rupiah fell to its lowest since August 1998, amid an Asian financial crisis, and South Korean won, the worst performer among all Asian currencies, extended its fall to 37% this year.
“The US dollar is appreciating consistently across all major currencies except Japanese yen due to safe haven demand ... on fear of global recession,” said L. Subramanian, chief currency dealer, ICICI Bank Ltd. “However, rupee is not expected to fall freely due to the possibility of public sector banks’ intervention. But gradual depreciation is possible if dollar appreciates further against other major and Asian currencies.”
According to dealers, RBI sold less than $1 billion in dollars on Thursday. The aggressive dollar selling by the Indian central bank this year has brought down its foreign currency reserves to $251.4 billion in the first week of November from $316 billion in May.
Earlier this month, the rupee strengthened to 47.20 to a dollar after touching its then all-time low of 50.29 in the last week of October. The currency started falling again after RBI stopped intervening in the market.
According to Kiran, Yes Bank Ltd.’s associate director of foreign exchange who goes by just one name, the hands-off approach of the central bank is in line with emerging market practice and RBI will now only sell dollars to prevent rapid depreciation of the local currency.
“In all Asian currency markets, the strength of intervention has slowed down. I think this is mainly to help the exporters,” said Kiran.
A depreciating rupee helps the exporters as they get more when their dollar bill is converted. India’s exports this year fell for the first time in five years as demand for goods in the overseas market slowed.
Most of the foreign exchange dealers are not ready to take a call on the level of the rupee.
“We have to go with the volatility. It would be foolish to take a view now. Tomorrow, if RBI does something positive for the market, rupee will strengthen,” said the treasurer of a private bank who didn’t want to be identified.
“People are taking a weekly view. The market is reacting to every news flows,” said Agam Gupta, head of treasury at Standard Chartered Bank. “We expect a range-bound market with weakening bias. It’s difficult to point out a figure.”
However, JPMorgan Chase bank’s India strategist Vikas Agarwal is optimistic on the rupee’s strength due to a variety of factors, such as decreasing current account deficit owing to lower oil prices, a potentially reduced pace of withdrawal from foreign portfolio investors, strong foreign direct investment, and encouraging RBI policy steps.
“Still, the short-term risks persist and it might take a while for financial markets to stabilize and de-leveraging to turn a smaller influence in determining asset market direction,” he added.
JP Morgan expects rupee at 48 a dollar by March. But Subramanian of ICICI Bank said the rupee could depreciate to 53 level in the next three-four months.