Mumbai: The rupee fell steeply on Thursday as a slump in overseas stocks fuelled concerns of more outflows from local shares while cash rates eased after the central bank cut banks’ reserve requirement to 6.5%.
By 10:20am, the partially convertible rupee was at Rs48.79/80 per dollar compared with Wednesday’s close of Rs48.525/540. It had recovered from a fall to Rs49.05 in early deals, at which it was down 1.1%on the day.
It hit a record low of Rs49.30 last week.
“There are no inflows coming in to the market, the stocks are expected to be negative through the day, so the rupee opened with a gap,” said the chief dealer with a state-run bank.
“There is also some non-deliverable forward related dollar demand in the market,” he added.
Indian shares fell nearly 6% to their lowest since July 2006 in early trade, following plunges in overseas markets. They later pared their fall to around 4%.
Offshore one-month non-deliverable forward contracts were quoting at Rs49.84/99 per dollar, 1.9% weaker than the onshore spot rate.
Two dealers said the state-run banks were seen selling dollars above Rs49, holding the local unit just below that mark. They also said on Wednesday evening’s cut in cash reserve requirements for banks would provide more room for the central bank to intervene to support the rupee.
Central bank intervention and tight liquidity conditions in the domestic money market had pushed overnight cash rates to more than 19-month highs of 23% last week, but rates have eased since then due to central bank measures.
The central bank last week cut the banks’ cash reserve ratio by 150 basis to 7.5% with effect from 11 October, and on Wednesday said it was further cutting it by another 100 basis points to 6.5% effective immediately.
The two cuts put together have released $20.5 billion into the system.
Overnight cash rates were quoting at 6.90/7.00%, compared with its previous close of 10.00/10.25%.