RBI steps in as Re hits record low of 58.98

In a roller coaster ride, the rupee today hit life-time low of 58.98 against dollar but erased a major part of losses to close at 58.39 after RBI intervened in the forex market to stem the slide in the local currency that caused much concern to government, markets and common man.

The rupee still closed 24 paise lower at 58.39 compared to yesterday's close, extending losses for fifth straight day.

At the Interbank Foreign Exchange (Forex) market, the domestic currency commenced lower at 58.30 a dollar from overnight close of 58.15. It dropped further to historic low of 58.98 on bearish stock markets amid reports of selling of government bonds by overseas investors to book profits.

However, intervention by Reserve Bank of India near record lows and weak dollar overseas helped the rupee to bounce back to a high of 58.24, before settling at 58.39.

"RBI was possibly waiting to enter the scene at levels where importers step out and exporters step in. It did so today at around 58.9 levels. While the risk of rupee going to 60-levels is diluted, more is needed to bring it back to 57-levels," said Moses Harding, Head - ALCO and Economic & Market Research, IndusInd Bank.

The rupee has weakened from 53.8 levels in April-end to over 58-levels at present and is also among the worst performing emerging market currencies in the 2013 so far.

"This is a temporary phase. This is simply a correction. Our indication is some of the FIIs are now poised to bring in large funds. In next 3-4 days, we will see a mid-course correction," Department of Economic Affairs Secretary Arvind Mayaram said in New Delhi.

Chief Economic Advisor Raghuram Rajan said Finance Minsitry will recommend to the Cabinet policies to enhance FDI limits on number of areas all this will help not just in short-term objective of financing the CAD safely but also in the longer term objective of ensuring sustainable growth.

The dollar index was last trading with losses of 0.30% against a basket of six major global rivals. This also helped rupee recover amid Bank of Japan leaving its policy unchanged against hopes of fresh measures.

Pramit Brahmbhatt, CEO, Alpari Financial Services (India) said: "Rupee is likely to depreciate further as weak domestic fundamentals, record current account deficit and high inflation still remains main concerns for the economy. The major resistance for spot rupee is at 59. If it is breached, then next level to watch will be between 59.7059.80."

The Indian benchmark S&P BSE Sensex today slumped by 298 points, or 1.53%, while FIIs sold shares stocks worth Rs 885 crore as per provisional data with stock exchanges.

FIIs last week sold debt securities worth Rs 7,600 crore as weakness in rupee is instrumental in the FIIs exiting the debt markets as the cost of hedging a volatile rupee is rising which is hurting the yield differential the FIIs are working with, said experts.

"The rupee has been depreciating continuously against the US dollar since last month. It has been under pressure due to debt market outflows and weak local fundamentals," said Abhishek Goenka, Founder and CEO, India Forex Advisors.

Dollar gained earlier in the day on the back of Standard & Poor's last night affirming its "AA+" long-term and "A-1+" short-term credit ratings for the US and raising its long-term rating outlook on the country to "stable" from "negative".

The rupee yesterday had touched an intra-day low 58.16 and closed a tad better at 58.15 against the US dollar.

Meanwhile, premium for forward dollar ended higher on sustained payments from corporates and banks.

Benchmark six-month forward dollar premium payable in November firmed up to 159-160 paise from yesterday's close of 157-159 paise and far-forward contracts maturing in May ended higher at 312-314 from 309-311 paise.

The RBI fixed the reference rate for the US dollar at 58.9255 and for the euro at 78.1846.

Rupee remained weak against pound sterling to end at 90.79 from Monday's close of 90.36 and also dipped further against the euro to 77.53 from 76.83. It, however, reacted sharply downwards against the Japanese yen to 60.21 per 100 yen from 58.83.