Rupee dips 1.4% on dollar demand

The rupee fell by 65 paise on Monday, as investors across the globe stocked dollars amid heightened fears of a default in the euro zone. The weak performance of equities domestically and sustained dollar demand from oil importers also drove the Indian currency to close near a 14-month low.

The rupee closed at 47.22 against the dollar, higher by 1.4 per cent compared to Friday’s close of 46.57. Last week, the rupee had depreciated by 1.7 per cent. According to Bombay Stock Exchange, there were net fund outflows of Rs 934 crore from equity markets that were down by around two per cent on Monday. The index of the dollar against six major currencies rose to 77.26 points from 76.61 points previously as investors parked their funds in the safer currency. The euro was at $1.3623 at the end of the rupee trade, sharply lower from $1.3807 on Friday, while the yen was at $77.02.

Rupee is expected to depreciate further. “In short-term we expect the rupee to remain under pressure and it may go as low as 47.80 in the short run. However, we do not expect the Reserve bank of India to intervene as this phase is momentary,” Pramit Brahmbhatt, chief executive, Alpari Financial Services.

Yields on the 10-year benchmark government bond 7.80 per cent eased marginally, as traders booked profits in the later half of trade during the day. Yields declined by two basis points at 8.29 per cent, compared with Friday’s close of 8.31 per cent. Lower-than-expected growth in industrial production in July failed to assure markets that there would be a pause in monetary tightening. A rise of 25 basis points is expected in the mid-quarterly review this week.

Liquidity was tight as banks borrowed Rs 52,575 crore under the liquidity adjustment facility on Monday. The interbank call money rates ranged between 8.05-8.10 per cent, as banks geared for advance tax outflows this week.