Indian rupee drops on equity outflow concerns

Indian rupee drops on equity outflow concerns
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First Published: Wed, Aug 29 2007. 05 00 PM IST
Updated: Wed, Aug 29 2007. 05 00 PM IST
Reuters
Mumbai: The Indian rupee fell nearly 0.5% on Wednesday, 29 August, as global risk aversion concerns hammered Asian markets and triggered fears of equity outflows.
At 9:50am (0420 GMT), the partially convertible rupee was at 41.322/332 per dollar, slipping from Tuesday’s close of 41.165/175.
“The market is jittery with all the bad news,” said a senior dealer with a private bank who expects the rupee to trade in a 41.25-41.40 range on Wednesday.
The benchmark share index dropped nearly 2% in early trade, tracking Asian markets that weakened on concerns about the US economy.
A report on Tuesday showed US consumer sentiment took its steepest plunge in nearly two years during August and Merrill Lynch downgraded the ratings on some major US banks due in part to the ailing credit markets.
The rupee has been supported for most of this year by strong equity inflows, but foreign funds have been net sellers of $1.9 billion this month. This has pulled the rupee down from a nine-year high of 40.20 hit last month.
A dealer at a state-run bank said that was strong demand for dollars in the offshore rupee market, an indicator that overseas investors were unwinding carry trades.
One-month non-deliverable offshore rupee contracts were around 41.54 and traders said the discount to the local cash rates indicates further weakness in store for the local currency.
Speculators had used the low-yielding yen as a cheap source of funds to buy higher-yielding currencies, like the rupee, in the carry trade, but the flare-up of market volatility from the US subprime mortgage crisis has forced a sharp reversal of positions.
Dealers also pared rupee holdings anticipating month-end dollar demand from oil refiners. Oil is India’s largest import.
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First Published: Wed, Aug 29 2007. 05 00 PM IST