Rupee breaches 60 mark as violence in Iraq intensifies

The rupee weakened and breached the 60 mark once again as violence in Iraq intensified due to which global crude prices are near a 9-month high. The rupee ended at Rs 60.17 compared with previous close of Rs 59.77 per dollar. The rupee had ended at Rs 60.23 on May 5.

The rupee had opened at Rs 59.86 and during intra-day trades it touched a low of Rs 60.23. According to currency dealers the Reserve Bank of India (RBI) intervened in the currency market in early trades but the weakness in the rupee continued due to dollar demand from oil marketing companies. Since the start of this fiscal the rupee has weakened by 0.47%.

“The weakness in the rupee was due to violence in Iraq. Besides, oil marketing companies were buying dollars. The Wholesale Price Index (WPI) inflation data also contributed to weakness in rupee,” said Sandeep Gonsalves, forex consultant and dealer, Mecklai & Mecklai.

According to currency dealers a higher WPI inflation signals that rate cuts will be delayed. WPI inflation rose to a five month high of 6.01% in May.

The outlook of the rupee depends on the impact the Iraq violence may have. According to Harding, group chief executive officer (liability and treasury management) & chief economist of Srei Infrastructure Finance, if the Iraq impact is seen temporary and short-lived, rupee should recover into Rs 58.35 - Rs 59.85 short term stability.

However, if geo-political led bearish momentum gets into a prolonged one, rupee will extend weakness beyond Rs 60.10 -Rs 60.60 into Rs 61.20. “While RBI has seen to have arrested dollar decline below Rs 58, stake holders expect RBI to prevent rupee weakness above Rs 60 to guide Rs 58-60 consolidation till macroeconomic conflicts are resolved,” he said.

Tracking weakness in rupee and concerns on the rate cut by RBI, government bond yields rose today. The yield on the 10-year bond ended at 8.65% compared with previous close of 8.60%.

Latest RBI data shows that foreign exchange reserves rose by $203.2 million to $312.59 billion in the week ending June 9.