RBI steps fail to check rupee as it hits fresh low

To weaken further in the absence of steps to attract inflows

The rupee hit a all time low in the early trade today as the liquidity tightening steps taken by Reserve Bank of India (RBI) since July 15 failed to prop up the currency.

The Reserve Bank of India likely sold dollars via state-run banks, helping the rupee recover from a record low, three traders told Reuters.

One trader said the central bank started selling dollars around 61.78 levels, though he said the sales were not strong.

The partially convertible rupee was trading at around 61.58/59 per dollar at around 1:10 pm, after hitting a record low of 61.80 a little while earlier.

Yesterday, rupee closed at 60.88 per dollar.  

The currency may further weaken in the absence of any concrete action by the government to attract inflows by way of sovereign or NRI bonds.

"I see it falling further due to dollar demand and panic in the market. The next low this week can go up to 62.65," said a currency dealer with a state-run bank.

The liquidity tightening measures have failed to yield desired results as short term rates eased with liquidity in the banking staying largely comfortable on the back of large government spending.

Banks' borrowing from marginal standing facility -- the rate of which was hiked by 200 bps to 10.25% on July 15 -- dropped sharply to around Rs 5,000 crore yesterday from a high of Rs 26,000 crore recorded at the beginning of the reporting fortnight. Overnight rates have also eased and fallen below 10.25%, a level reached after the liquidity tightening measures.
 
"The rupee weakened due to buying by foreign banks towards NDF (Non-Deliverable Forwards). I see it weakening further and when month-end dollar demand starts after 15th, it may even hit 63," Said a currency dealer with a consultancy firm.