Mumbai: The rupee dropped on Thursday following the Reserve Bank of India’s decision to tighten external commercial borrowing (ECB) rules and also weighed by demand for the US unit from oil refiners and importers.
The partially convertible rupee closed at 46.64/65 per dollar, off a low of 46.73 but still 0.2% weaker than its previous close 46.535/545. On Wednesday, it fell as low as 46.87 during trade, its weakest since 27 November.
“It opened weaker tracking the dollar index and global equities. The external commercial borrowings rule change also had some impact,” the chief dealer with a large private sector bank said.
From 1 January, the Reserve Bank of India (RBI) will withdraw some concessions on overseas borrowing for firms introduced during the global credit crisis, although it also eased rules for the infrastructure and telecom sectors.
“While the measures may have come in a bit earlier than expected, given the still-abundant liquidity conditions and muted trends in credit growth; the impact on bonds and currency has been limited,” Citigroup economists said in a note on Thursday.
“However, what is positive is that the norms will help filter out weaker credits from borrowing overseas,” they wrote.
Analysts said the central bank may have tightened the rules on external commercial borrowing to indirectly boost domestic credit growth rather than to just curb capital inflows.
The sharemarket ended up 0.4%, helped by expectations for robust industry output data on Friday lifted investor appetite for risk.
Foreign buying of stocks have been a key driver for the rupee. Foreign investors have bought a net $16 billion worth of stocks up to the start of December, helping the rupee rise 12% from is record low of 52.2 in early March.
The index of the dollar against six majors was seesawing on Thursday, failing to provide any clear direction.
Dealers said dollar demand from oil firms also weighed on the rupee. Oil is India’s biggest import and refiners are the largest buyers of dollars in the domestic currency market.
The chief dealer said the rupee appeared to be in a 46.30-47.30 range, based on technical charts.
“Being December, due to lack of volume and higher volatility it would be tough to predict the G-7 currencies. Our currency too will have to track them,” he said.