Mumbai: The Indian rupee crossed 50 per US dollar level on Friday, leading the pack of Asian currencies that has lost against the greenback this week.
The rupee’s loss was the highest among all Asian currencies this week as it dipped 2.3% against the dollar as stubbornly high inflation and signs that growth prospects are slowing down are prompting foreign investors to shun India. Foreign institutional investors have sold $372.2 million (Rs 1,865 crore today) in Indian stock since January this year, net of buying. In the last three months, they have liquidated $2.37 billion worth of Indian securities from their portfolios.
The local currency ended at 50.02 per dollar against its Thursday close of 49.79, after the Reserve Bank of India (RBI) sold dollars in the market through banks. In intra-day trade, it dipped to as much as 50.32—its lowest since April 2009.
Currency market participants say it is not the end and the rupee may cross its 2008 lows of 52 a dollar the moment the euro zone debt crisis blows up and the euro starts losing against the dollar.
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In the year to date, the rupee has lost more than 10.5% against the dollar.
Friday’s loss was led by arbitrage gain hunting between the overseas and domestic markets, and traders did not rule out RBI intervention in the form of dollar-selling to stop a precipitous fall of the local currency.
After Friday’s fall in the rupee, there is not much difference between the non-deliverable futures market overseas and the domestic market. Both are expecting the rupee to hold at the present level for some time before it starts depreciating again.
“It is all because of global worries and the rupee will sustain on these levels and weaken in the long term. By the end of the year, the rupee may touch 52.60-52.70 a dollar level unless the euro zone crisis abates,” said Satyajit Kanjilal, chief executive officer of Forexserve, a foreign exchange consulting firm.
According to currency experts, the future of the rupee could be quite strained and there is little that RBI’s intervention can do to stem the loss.
“We have to look at the huge export debt obligation staring at us by March. Even if everything goes fine, we have to pay a massive amount as external debt and that is going to put unprecedented pressure on the rupee,” said Abhishek Goenka, chief executive of India Forex Advisors Pvt. Ltd.
According to RBI data, $137 billion in a short-term debt obligation is to be fulfilled by India to its foreign lenders by June. This is 43% of India’s total external debt.
“By February and March, a lot of people will come in the market to buy dollars, there will be chaos. The rupee will have to weaken,” said Goenka.
The euro is still holding strong between $1.3705 and $1.3815 against the dollar. Dealers fear the euro zone crisis is creating more uncertainties than what it was expected to. The crisis, they fear, will blow up by the year-end or by the time when dollar will be much needed in the domestic market for paying external obligations. The euro zone crisis may drag down the exchange rate of the euro to $1.30-1.32 and this will put huge pressure on the domestic currency.
However, there are a few who expect the rupee to recover from these levels.
Swedish lender Skandinaviska Enskilda Banken AB in a research note on Friday said the rupee should rebound to the 48.60 a dollar level soon as RBI is expected to continue with its rate hikes, thus making India a high-yield market for foreign investors.
State Bank of India’s managing director of foreign operations, H.G. Contractor, said in the long term the rupee should appreciate. He did not give any level or specify any time.
Union finance minister Pranab Mukherjee discussed the rupee weakening with RBI governor D. Subbarao in the Capital on Friday, PTI reported.
The RBI governor was there at a customary meeting with the finance minister ahead of the quarterly review of monetary policy next week.
Bloomberg contributed to this story.