Rupee closes at 20-month low of 64.24 against dollar

Mumbai: The rupee weakened sharply on Thursday as dealers bought dollar due to the increased demand for the US currency from foreign institutional investors (FIIs) who pulled out some of their investments from the local equity markets.

The rupee touched a low of 64.28, the lowest since 10 September 2013. The home currency closed at 64.24, down 1.09% from its previous close of 63.54, its lowest close since 6 September 2013. In intra-day, it fell 1.1%, its sharpest fall since 6 August.

This is the fifth consecutive session of the rupee’s weakness against the dollar as foreign investors sold the currency in the domestic markets.

Harihar Krishnamoorthy, treasurer at FirstRand Bank Ltd, said it is likely that FIIs have sold their investments in India to pour money into markets which are doing better than here.

“The Chinese markets for example have risen more than 40% in 2015. Other markets like Indonesia and even Europe are also doing well so there has been a change in the global investor fundamentals. Specifically for the rupee, the sharp fall in local stock market on Wednesday has shifted the tide,” Krishnamoorthy said.

The 30-share benchmark Sensex fell 2.6% on Wednesday, the sharpest fall since 6 January. Since 13 April the fall in the local stocks has picked up pace and the Sensex has fallen by over 2,300 points on expectations of a weak monsoon, muted corporate earnings and the threat of minimum alternate tax being imposed on overseas funds.

Foreign institutional investors (FIIs) sold $1.8 billion in the equity markets in the last 12 of 13 sessions, except on 21 April when they bought $2.6 billion.

On Thursday, the Sensex fell 0.44% to 26,599.11 points.

Besides the weak sentiment in the local stock market, the jump in crude oil prices, higher US treasury yields and concerns over Greece exiting the euro zone have also impacted the rupee.

Brent crude hit a low of $46.59 a barrel on 13 January and has since then gained 47.48%.

The US 10-year treasury yield rose overnight to 2.24% compared with 2.18% in the previous session, indicating that traders in that country are expecting the US Federal Reserve to hike rates sooner rather than later.

All these factors have also impacted the domestic benchmark 10-year bond, which closed at 7.995%, a level last seen on 1 December 2014, compared with its Wednesday’s close of 7.89%. It touched a high of 7.996% highest since 17 December.

If the current pace of FII outflow continues, foreign exchange dealers said the rupee could touch 64.50 per dollar at least in the next few sessions if the current pace of selling from FIIs continues.

Dealers said dollar sales from state-owned banks on behalf of the Reserve Bank of India (RBI) prevented the rupee from falling sharply.

“The rupee would have weakened further had it not been for dollar sales from state-owned banks. They have been selling dollars since 63.90, but the demand for dollars has been really strong today,” said a dealer with a French Bank adding that the rupee is likely to weaken to 65 a dollar in the next few days.

Dollar demand has been strong on Thursday because FIIs who sold their equity investments on Wednesday are converting their rupees into dollars to pull it out from India.