Mumbai: The rupee dropped for the eighth straight session on Wednesday as suspected central bank intervention and corporate dollar sales did little to prevent the downward pressure on the unit amid a global sell-off of riskier assets.
Foreign funds have been pulling out of equities over the past week and oil refiners who import about three-quarters of India’s crude consumption have been heavy buyers of dollars in recent sessions.
The rupee rebounded as much as 1.7% to 51.70 per dollar from the day’s low of 52.60 after state-run banks, who often act on behalf of the Reserve Bank of India (RBI), were spotted selling dollars.
“Lots of selling from state-run banks...it has to be the RBI, no one else would sell like this,” a senior dealer with a foreign bank said.
However, the rupee reversed the rise to close at 52.36/37 per dollar, 0.1% weaker than 52.2950/3050 at close on Tuesday when it had hit a record low of 52.73 during trade.
“The German auctions results triggered heavy selling of the euro and shares, which lead to a sell-off in the rupee as well,” said Ashtosh Raina, head of foreign exchange trading at HDFC Bank.
The euro fell to a six-week low against the dollar on Wednesday, as investors shunned euro zone assets on concerns over the stability of the region’s banks and signs that its debt crisis is starting to threaten even Germany.
“There is heavy demand for dollars for all counters. There are continuous bids emerging. So the outlook now really depends on the central bank’s stand,” Raina said. RBI Governor Duvvuri Subbarao, reached by reporters in Hyderabad earlier in the day, declined to comment on whether on not the central bank had intervened in the forex market.
Traders said market talk that a separate window would be opened by the central bank for oil refiners to buy dollars directly had also led to unwinding of long dollar positions by large companies which had helped the rupee in early trade.
“Today’s recovery only seems like a temporary relief for the rupee,” a senior trader with a state-run bank said.
ASIA BEARS GROW
Investors grew more bearish on most emerging Asian currencies in the last two weeks as Europe’s debt crisis deepened, with views on the rupee the most pessimistic in more than three years, a Reuters poll showed on Wednesday.
India’s central bank has always maintained that it does not protect any particular level on the rupee and would only intervene to iron out excessive volatility.
Subbarao had said on Tuesday the RBI was watching the situation and would ensure the exchange rate does not impair economic stability.
Finance minister Pranab Mukherjee on Tuesday blamed the fall in the rupee on the international market and said that central bank intervention would have a limited effect.
The main stock index ended 2.3% lower after touching their lowest in two years on Wednesday, as domestic concerns over high inflation, slowing growth and a faltering rupee continued to sap investor confidence.
Foreign funds have sold more than $450 million worth of shares over five trading sessions till Monday, reducing the net inflows in 2011 to under $300 million, sharply below record investments of more than $29 billion seen in 2010.
Exposure to short-term portfolio flows, a rising oil import bill and worsening government finances have heightened the risk for the rupee, Asia’s worst-performing currency this year.
The rupee has lost 14.6% of its value in 2011 to be the worst performing currency in Asia with the closest second being the Thai baht, which has lost only 3.5%.
“We regard the current depreciation in the dollar-rupee exchange rate as a reflection of the current downswing in the business cycle -- it’s cyclical,” Philip Wyatt, economist at UBS wrote in a note.
“Overshoot is likely -- past 55 rupees per dollar. Next year, we expect the exchange rate to appreciate by around 10%, first, as inflation slows; later, as growth recovers,” he added.
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