Rupee hits a new low, turns worst performer in Asia

Wednesday’s losses pulled the rupee down to make it the worst performer in Asia. Since January this year, the rupee has weakened 10.28% and has lost the most among Asian currencies during that period, higher than the Japanese yen’s 10.17% drop.

The rupee ended at Rs.61.30 per dollar, down 0.8% from Tuesday’s close of Rs.60.81 per dollar and lower than the previous record closing low of Rs.61.10 per dollar on 2 August.

It had touched a low of Rs.61.45 a dollar intra-day. The currency’s all-time traded low if Rs.61.81, which it touched on Tuesday.

The rupee had gained considerably in afternoon trade, strengthening to Rs.60.90 per dollar on hopes that a meeting between regulators, in which Reserve Bank of India (RBI) governor-designate Raghuram Rajan was also a participant, would lead to the announcement of steps to attract dollars either through external commercial borrowing (ECB) liberalization or a bond issue.

However, traders squared off their positions as such an announcement did not come before the market closed.

N.S. Venkatesh, head treasury at IDBI Bank Ltd, said the rupee can recover if the government announces measures to support the currency.

“The government can incentivize exporters and make nonessential imports less attractive by raising duties. They can also attract debt inflows by liberalising ECB loans and attract dollars by selling bonds to NRIs (non-resident Indians),” Venkatesh said.

In intra-day trade, the rupee had recovered some losses as banks reduced their US currency positions, responding to reports that RBI may consider liberalizing ECB norms to help debt-laden Indian companies and attract foreign inflows.

Bloomberg TV reported that India may allow companies to raise ECBs to refinance their debt late on Wednesday. The reports triggered dollar sales by banks as they adjusted their positions expecting increased US currency inflows from such loans taken by companies. However, the currency came under selling pressure at the end of the day as there was no clarity on such measures.

Limited intervention by RBI also did not allow the rupee to hold on to its gains. Unlike Tuesday, when the central bank had sold dollars aggressively in the market to ensure that the rupee ended above Rs.61 per dollar, intervention from RBI was limited, said a dealer with a UK bank.

“Nobody knows in what form the new norms are going to come, but that is what had triggered the upward movement in the rupee. There is expectation that some new measures will be announced before the end of the week,” said a dealer with a French bank.

The dollar index, which measures the US currency’s strength against major currencies, was trading at 81.39 at the close of the market hours in India, down 0.26% from the previous close.

India’s benchmark Sensex ended at 18,664.88 points, down 0.36% from the previous close.

The 10-year bond ended at 8.148%, down 6 basis points from its previous close of 8.209%. A basis point is one-hundredth of a percentage point.

The call money rate ended at 10.20%, up from the previous close of 10%.

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