Re closes at record low of 50.48

The rupee fell by 53 paise against the US dollar, weakening for the fourth consecutive day, to close at a record low of Rs 50.48 as against Rs 49.95 yesterday.

Continued capital outflows, the effect of arbitrage and month-end demand from importers kept the currency below 50, indicating persistent tendency towards weakness.

Overseas investors increased stock sales after Standard & Poor’s revised India’s credit rating outlook to negative from stable.

According to Bloomberg data, the Indian currency opened weaker at 50.04, as against yesterday’s close of 49.95 and hit an intra-day high of 50.49 before recovering marginally.

Compared with the trends during the last two weeks, there was significant volatility today. There was not much corporate covering seen during the trades. All the Asian currencies, except the Thai Baht, turned weak overnight.

ALL-ROUND WEAKENING
Currency/dollar	Jan 1,2009	Feb 26,2009	% change
Korean won	1,322.10	1,517.55	-14.78
Indonesian rupiah	11,015.00	11,989.00	-8.84
Japanese yen	91.83	98.13	-6.86
Taiwan dollar	32.82	34.85	-6.18
Malaysian ringgit	3.47	3.67	-5.87
Singapore dollar	1.46	1.54	-5.39
Indian rupee	48.75	50.48	-3.55
Thai baht	34.88	35.96	-3.10
Pakistani rupee	79.05	79.84	-1.00
Hong Kong dollar	7.75	7.75	-0.03

The treasury head of a private bank said, “Though the rupee saw a record low there was no sign of an intervention from the central bank to defend the currency. Perhaps, it does not wish to suck out rupee liquidity by pumping dollars when the bond auction has been lined up. It wants to avoid any panic when liquidity is adequate in the system.”

A dealer with a medium-sized bank said the traders were taking advantage of the difference in the value of rupee traded in domestic and overseas contracts.

The market is also taking a cue from the non-deliverable forwards (NDF) market, which is indicating a weakening bias. The one-month rupee contract in the non-deliverable forwards (NDF) market is currently being traded at Rs 50.68/50.73. “If the players see the arbitrage opportunity, the rupee may fall further,” he added.

The rupee also fell on speculation companies increased dollar purchases to settle import bills before the month-end. Offshore forward contracts showed traders increased bets for further weakness in the currency. Exports have shrunk in the third quarter ended December 2008, while imports continued to grow, fueling concern the current-account deficit will widen further.

India’s current account deficit, a broad measure of trade flows, remittances and investment income, stood at $12.5 billion in the second quarter ended September 2008, according to RBI data. The forward premia rates softened across the curve. The month forward premia for the dollar was at 1.96 per cent.