Mumbai: The Indian rupee was pushed to its weakest level in nearly two and half months on Monday as sovereign debt worries in the euro zone sent the single-currency to four-year lows while weak local shares also hurt sentiment.
The partially convertible rupee closed at Rs45.62/63 per dollar after hitting Rs45.77, its weakest since 5 March. It dropped 0.9% on day from Friday’s close of Rs45.21/22.
The euro slid to a four-year low on Monday on sovereign debt worries and fears that planned belt-tightening measures will hurt euro zone growth, fuelling concerns the single currency may face a free-fall.
“The euro and sterling’s drop against the dollar had its impact on the rupee as well, besides stocks were also weak today,” a senior dealer at a large state-run bank said.
“In the next 1-3 months, INR will be very choppy and under pressure, however the bullish outlook for INR beyond 6 months is intact,” he said.
India’s main share index fell 0.9% on Monday, joining the sell-off in Asia on worries austerity measures in euro zone would hamper a recovery, but losses were capped by Larsen and Toubro’s forecast-beating quarterly earnings.
The benchmark has dropped 4.1% so far this month, with foreign funds pulling out around $665 million from Indian equities. Still, they have invested a net of about $5.9 billion so far this year, adding to a record $17.5 billion last year.
The rupee’s fortunes are closely linked to these foreign fund flows and the unit is down 2.8% so far this month, trimming its gains in 2010 to just 2%.
Citigroup said in a research note they expect a further rise in capital flows to emerging economies with high growth potential as the euro zone fiscal crisis may force the European Union and the US Federal Reserve to hold policy rates longer.
The index of the dollar against six major currencies was up 0.5% around the time the Indian market closed. It had been up as much as 1.1% earlier.
“We expect the INR to remain very responsive to developments in the global risk sentiment. The USD/INR pair could head lower in the near-term as risky assets rally in response to the EU bail-out package,” economists at HDFC Bank said in a note.
“However, global growth concerns could restrict any major downward move. We expect the USD/INR pair to stabilize in the 44.80-45.50 range in the near term,” they added.
One-month offshore non-deliverable forward contracts were quoting at 45.76, weaker than the onshore spot rate.
In the currency futures market, the most traded near-month dollar-rupee contracts on the National Stock Exchange and MCX-SX closed at 45.65 and 45.6475 respectively, with the total traded volume on the two exchanges at about $7.7 billion.