Rupee falls 1.5 percent to record closing low
Rupee falls 1.5 percent to record closing low | Reuters
MUMBAI | Tue Jun 18, 2013 5:26pm IST
(Reuters) - The rupee fell 1.5 percent to a record closing low on Tuesday as traders worried that the country's current account deficit made the currency especially vulnerable to any scaling back of the U.S. Federal Reserve's monetary stimulus.
The rupee is expected to remain hostage to global currency movements ahead of the outcome of the Fed's monetary policy meeting on Wednesday. Any signal that the U.S. central bank will start to scale back efforts to keep interest rates low would likely result in a shift of funds out of India, dealers said.
Dealers also cited heavy dollar demand from local market participants, which traders attributed to demand related to the government's defence needs and oil refiners.
The funding of India's current account deficit remains a big concern for foreign investors. These concerns were reinforced after data on Monday showed trade deficit widened to a seven-month high in May.
The rupee is also being pressured as foreign investors have net sold rupee debt of $4.7 billion over 18 sessions, while outflows from the equity market are also picking up pace.
The Reserve Bank of India was not spotted intervening even as the rupee approached an all-time low of 58.98 hit on June 11, the last time the central bank was seen selling dollars.
"The rupee will depreciate and will surpass its record low, with RBI interventions only delaying the fall. Over time, I see it moving towards 60 to a dollar," said Param Sarma, chief executive at NSP Forex.
"The trade deficit remains high and capital inflows are not coming through."
The partially convertible rupee closed at 58.77/78 per dollar, surpassing its previous lowest close of 58.39 seen last week. It had closed at 57.87/88 on Monday.
The rupee's fall in the late session was also tailing the euro, which moved off four-month highs against the dollar after release of German ZEW data.
Despite concerns about the current account deficit, analysts say recent measures to curb gold demand could help dent imports of the yellow metal, though any such improvements would need time to filter through.
In the offshore non-deliverable forwards, the one-month contract was at 59.17, while the three-month was at 59.78.
In the currency futures market, the most-traded near-month dollar/rupee contracts on the National Stock Exchange, the MCX-SX and the United Stock Exchange all closed around 58.88 with a total traded volume of $7.6 billion.
