Rupee hits lowest in more than 2 yrs; Fed eyed

Rupee hits lowest in more than 2 yrs; Fed eyed

Mumbai: The rupee ended weaker on Wednesday after dropping to its lowest level in over two years as investors reduced their exposure to risk ahead of the Federal Reserve’s policy meeting, where it is expected to unveil steps to revive a flagging US economy.

A wobbly euro and choppy domestic equities, which slipped 0.2% in choppy trade, added to the rupee’s woes, traders said.

The Fed is expected to announce at 11:45pm, plans to rebalance its portfolio in favour of longer-dated bonds and so push long-term interest rates -- already near historic lows -- even lower in a move known as Operation Twist.

“Given the worsening growth scenario around the world and the possibility of a sharp movement in the dollar after Fed’s decision, it is very logical to see people square of risky positions," said Naveen Raghuvanshi, an associate vice president at Development Credit Bank.

Raghuvanshi added the rupee could move in wide band of 47.00-48.50 on Thursday depending up the Fed’s action plan and how the markets respond overnight.

The partially convertible rupee ended at 48.325/335 per dollar, 0.58% weaker than Tuesday’s close of 48.05/06 and after touching 48.34 intraday -- its weakest since 16 September, 2009.

Worries over trajectory of global growth have already risen a notch after the minutes of Bank of England’s September meeting showed that most policymakers believed stresses of the past month had strengthened the case for an “immediate" return to the policy of quantitative easing, traders said.

The rupee had opened stronger at 47.99 and risen to 47.8375 driven primarily on expectation of robust dollar inflows, traders said.

“Lot many short dollar positions which had been initiated on hope of inflows, but these were scaled back after the flows were not high as expected," said a foreign exchange dealer at a private sector bank.

Foreign funds have bought $416 million rupees of local shares so far this year after having sold over $2.2 billion in the previous month.

So far this year, the rupee has weakened by more than 7% against the greenback and is the worst performer among major Asian peers.

Eyeing the increase in risks from exchange rate volatility and rise in imported inflation, the Reserve Bank of India needs to intervene more actively in the country’s forex market said Standard Chartered Bank in a research note on Wednesday.

The central bank, in its mid-quarter policy review last Friday, said that the rupee’s depreciation may have adverse implications for inflation.

The euro was at $1.3652 after touching a high of $1.3723 earlier. It had been $1.3682 at the end of the rupee trade on Tuesday.

The index of the dollar against six major currencies was 77.248 points from 77.105 previously.