Mumbai: The rupee slipped to a record low on Monday as falling stocks, weak export data, bearish global markets and an arbitrage play with offshore derivatives drained demand despite suspected Reserve Bank of India, or (RBI), intervention.
The partially convertible rupee closed at Rs51.90/92 per dollar, sharply down from Rs51.10/12 on Friday. The rupee fell 1.5% on the day, taking its losses to 6.2% in 2009.
“It was an out-and-out non-deliverable forwards-related demand. Those with dollar loans, external commercial borrowings, etc. and who are unhedged are scrambling to cover after Rs50.65 broke,” a senior dealer with a private bank said.
“At the same time, exporters have gone to sidelines and will hold out unless they get a sense of dollar’s top in place. So the demand-supply has gone totally skewed, with supply only coming from the central bank (RBI),” he added.
Dealers said state-run banks likely sold between $500 to $800 million to stem the rupee’s fall.
One-month offshore non-deliverable forward contracts were at Rs52.28/38, weaker than the spot rate. That creates an arbitrage opportunity where dollars are bought locally and sold offshore to profit from the price differential.
Losses in shares also weighed.
Indian stocks fell 3.2% to their lowest close in more than three months, raising concerns of more foreign outflows.
The rupee could drop to Rs56 per dollar in the next three months, weighed by an economic slowdown and a balance of payments deficit, Barclays Capital said on Monday.
The rupee was not alone in its woes, with the South Korean won falling to an 11-year low as investors shifted away from riskier emerging market assets.
Foreign investors sold $1.7 billion of local shares in the first two months of the year, after selling more than $13 billion last year when the rupee fell more than 19%.
“The US data on Friday reminded everybody about the extent of the global economic situation and that has triggered a sell-off in markets. And even though India may not have much exposure to the world, it is not an island,” said Nizam Idris, currency strategist with UBS in Singapore.
“Forex, whether it is in Asia or elsewhere, is being dictated by the global risk position and right now the outlook isn’t very bright and the rupee is just reflecting its regional peers.”
Dealers said a drop in exports added to the poor sentiment. Exports fell 15.9% in January from year earlier, a fourth straight fall as the global downturn bites.
Still, the trade deficit narrowed to $6.1 billion in January from $7.6 billion in December as import values dropped 18.2%, mainly due to the sharp fall in oil prices.