Mumbai: The rupee weakened past 45 per dollar for the first time since November 2006 on Wednesday as stock market losses raised expectations of more foreign fund outflows while strong dollar demand from foreign banks weighed.
The rupee closed at 45.12 per dollar, 0.62% weaker than Tuesday’s close of 44.84.
The local currency hit a low of 45.20 during the day’s trade, its weakest since 16 November 2006. The rupee at the close had lost 2.6% in the last six trading sessions.
“There was heavy dollar buying by some foreign banks today (Wednesday), which weakened the rupee,” said Puneet Sharma, chief foreign exchange trader at Allahabad Bank. “There is a possibility that the central bank may have intervened at 45.05 and 45.15 levels, but the extent of intervention was not much.”
The Reserve Bank of India’s, or RBI’s, policy is not to take a view on the exchange rate but only to try and prevent volatility in the market in a flexible and liquid manner, its chief, D. Subbarao, said on Tuesday.
Dealers said losses in the share market renewed worries of more foreign fund outflows, and added that the rupee is likely to fall to 45.50 in the absence of sizeable RBI intervention. The benchmark Sensex index of the Bombay Stock Exchange shed 1.6% to its lowest close this week, with banks slipping as global sentiment towards the financial sector was dented by concerns at Lehman Brothers Holdings Inc.
The US investment bank reported a third quarter loss of $3.9 billion (Rs17,596 crore), raising speculation about its survival in the credit-market turmoil.
In the currency futures market, the most heavily traded September contract ended at 45.2875 per dollar, with a modest volume of 41,328 contracts.
Bond prices gain
Ten-year government bonds gained for a second day, pushing yields to the lowest in almost three months, as falling commodity prices tempered concern that inflation will accelerate. “The gains in bonds are driven mainly by the slide in commodity prices,” said Baljinder Singh, a trader at state-owned Andhra Bank.
The yield on the 8.24% note due April 2018 fell 2 basis points to 8.37% at the 5.30pm close in Mumbai, according to RBI’s trading system. A basis point is 0.01 percentage point.
Bonds also rose as banks probably bought the securities to cover rising deposits. Lenders are required to invest at least 25% of their deposits in government debt or other low-risk securities approved by the central bank.
Bloomberg contributed to this story.