Mumbai: The rupee weakened for a third consecutive session on Wednesday to end below 56 to the dollar for the first time in June, as dollar demand from oil firms weighed, setting up the prospect of central bank intervention.
The rupee is approaching a record low of 56.52 hit on 31 May after the Reserve Bank of India kept interest rates on hold on Monday, raising worries about economic growth prospects, and after Fitch Ratings followed Standard and Poor’s in cutting the country’s outlook to “negative.”
The local currency weakened even on a firmer day for the euro and other risk assets, which benefitted from hopes the US Federal Reserve will adopt further monetary stimulus measures.
The outcome of that meeting will be crucial for the near-term outlook of the rupee, with any disappointment setting up the prospect of a hit to emerging risk assets.
“If the euro comes down tonight, INR may weaken further. I expect a 55.85 to 56.25 range on the rupee, but we will have to see whether the RBI steps in,” said A. Ajith Kumar, a foreign exchange dealer with Federal Bank.
The partially convertible rupee closed at 56.15/16 per dollar as per the SBI closing rate, versus its previous close of 55.95/96.
It dropped to as low as 56.17 in the session, its lowest since June 1.
Falls were sparked largely by dollar purchases from oil firms, the largest buyers of greenbacks, in the domestic currency market.
Traders said they did not spot any intervention in the forex market during the session but expect the RBI will monitor movements and prevent the rupee from sliding towards recent record lows.
The one-month offshore non-deliverable forward contracts closed at 56.56 while the three-month closed at 57.33.
In the currency futures market, the most-traded near-month dollar-rupee contracts on the National Stock Exchange, the MCX-SX and the United Stock Exchange all ended around 56.23 on a total volume of $4.08 billion.
