Business Standard

Re weakens amid pressure on debt redemption

Related News

High dollar demand from Indian companies to redeem their foreign debt obligations, coupled with month-end requirements of oil importers, on Thursday pushed the rupee-dollar exchange rate beyond 51 levels, last seen two months ago. The absence of dollar supply from the (RBI) in the spot market also triggered a rush in the market as importers covered their positions, fearing further depreciation in the Indian currency. Satyajit Kanjilal, founder and CEO of Forexserve, said the rupee was under pressure again for a multitude of factors.

“Indian companies are mopping up the greenback to meet their debt repayment obligations. There is also demand from oil companies to prepare them before the effect of the Iran sanctions kicks in,” said Kanjilal.

According to Bloomberg data, the rupee ended at 51.22 after trading between 50.77 and 51.27 against the greenback. Traders said the central bank intervened in the forwards market to the tune of $400-500 million but was absent from the spot market. “Probably, the RBI is selling dollars in the forwards market and rolling over maturing contracts so that rupee liquidity is not impacted,” said a foreign exchange dealer with a domestic brokerage.

The rupee had closed at 50.67 a dollar yesterday. The forward premia rates softened over the previous day's level and the six-month forward premium ended lower at 7.41 per cent.

According to data, RBI has been participating in the forwards segment since November 2011. In January, it sold $1.3 billion in the forwards market. RBI Deputy Governor had attributed the structural rupee liquidity tightness to the central bank’s past foreign exchange market interventions.

The liquidity deficit in the domestic banking system is around Rs 1.2-1.3 lakh crore, which is above twice the RBI’s comfort level of one per cent of net demand and time liabilities.

Apart from the month-end bill payment requirements of oil importing companies, dollar demand is also coming from corporate bodies as they redeem maturing External Commercial Borrowings (ECBs) and Foreign Currency Convertible Bonds (FCCBs).

“Oil companies are buying about $500 million on average every day. Dollar demand is huge if you add foreign debt repayments, too,” said a treasury official of a public sector bank. RBI had raised concerns on the burden of that would come up for redemption in the Financial Stability Report released in June 2011. According to the central bank, FCCBs worth $3.48 billion would mature in 2011-12.

The Indian currency has lost 4.5 per cent since the start of this month and close to 15 per cent since the start of the financial year. “This is despite positive foreign fund inflows and general weakness in the dollar across other currencies,” said Abhishek Goenka, MD & CEO, India Forex Advisors.

Data from the Bombay Stock Exchange showed there were Rs 246 crore worth of net inflows from Foreign Institutional Investors (FIIs).

FIIs have invested close to Rs 8,500 crore in Indian debt and equity markets since the start of this month. On Thursday, the dollar index against six major global currencies was trading at 79.9 levels, lower than the 80.19 levels a week ago.

Read more on:   
|
|
|
|
|

Read More

IABF to close $120-mn fund this year

India Agri Business Fund (IABF), a $120- million equity fund instituted in 2008 for which Rabo Equity Advisors is an investment advisor, is planning ...

Quick Links

Market News

Sensex up nearly 100 points; Cipla, ICICI Bank top gainers

The 30-share Sensex was up 88 points at 29,366 and the 50-share Nifty was at 8,850 trading lower by 14 points

Mentha oil futures gain 0.54% on spot demand

Oil for delivery in January edged up by 0.48%

Chana up 0.4% on spot demand

Analysts said pick up in demand in the spot market, tight stocks position on restricted supplies from producing belts led to the rise in prices

Appeal over self regulator for MF distributors to be heard in Feb

Case adjourned so that full bench can hear the matter

Nickel up 2.4% on spot demand

Metal for delivery in February rose by 2.27%

 

Back to Top