Mumbai: The rupee bounced off two-weeks lows as exporters sold dollars, but still closed weaker on Thursday as losses in domestic shares and concerns about the election producing a weak coalition government weighed.
The partially convertible rupee closed at Rs49.78/79 per dollar, off an early low of Rs50.02, its lowest since 29 April, but still weaker than its previous close of Rs49.71/72.
“Fifty was a psychological level, where the dollar/rupee took a breather, with exporters coming in to sell dollars. The rupee will continue to be a bit erratic, till the political situation is clear,” said V. Kumar, chief dealer with State Bank of Travancore.
“The immediate direction for the currency is unclear, but overall sentiment is still bearish for the rupee,” he added.
Exit polls showed there was unlikely to be a clear winner of national elections, and worries about a weak coalition government saw shares drop 1.2%.
A fractured verdict could make the communists and small regional parties key players in any coalition, making it hard to take tough decisions on privatization and to help cut a burgeoning fiscal deficit.
Political uncertainty could also put the brakes on capital inflows. Foreign funds have pumped in more than $1.8 billion into the stock market in May after moving in $1.5 billion last month, helping the rupee rise nearly 5% from a record low in early March.
Dealers said the dollar’s strength against majors also weighed on the local unit.
The dollar inched up on Thursday, supported after sluggish US retail sales figures reminded investors that recent optimism about a global economic recovery may be premature and kept risk aversion high.
One-month offshore non-deliverable forward contracts were quoting at 49.91/50.01, weaker than the onshore spot rate.
“We expect uncertainty about the nature and composition of the coalition which forms the next government to continue over the next several days, and equity and currency markets to be volatile as a result,” Goldman Sachs economist Tushar Poddar said in a report.