Rupee falls 1.7% on euro blues

The rupee fell over 1.70 per cent against the US dollar today, weighed down by falling euro against the greenback and largescale selling by foreign institutional investors (FIIs) on stock exchanges.

Dealers said the fall in the rupee was in line with the trends in Asian markets. It hardly reflected any change in perception about Indian economic conditions, they said.

The rupee closed at 46.36 to a dollar as against the previous close of 45.36, according to Bloomberg data.

The euro and the rupee faced fresh pressure after Germany late Tuesday banned naked short-sales in euro government bonds.

There is flight to “safe assets” and people are scaling down exposure to euro assets. They are shifting investments to other asset classes, including US dollar and gold. The sentiment has predominance over rational thinking. The fear psychosis had spread to stock markets as well, said head of treasury of a large public sector bank.

After investing $2.96 billion in Indian equity and debt instruments in April, foreign funds have pulled out $820 million worth of investments in May so far as the debt crisis in southern European nations has soured market sentiment.

IN A FLUX CURRENCY PER RUPEE
	26-Apr	19-May	% chg
Japanese yen	0.47	0.51	-7.24
USD	44.40	46.37	-4.45
Chinese renminbi	6.50	6.79	-4.43
Hong kong dollar	5.72	5.94	-3.95
British pound	68.62	66.18	3.55
Euro	59.42	56.63	4.69
Source : Bloomberg

However, dealers term the rupee’s fall and the accompanying pullout by foreign funds a blip. If at all, the crisis in Europe would only lift the rupee and get foreign funds to flock to India after sentiment became stable, they added.

Not just the rupee, even its peer currency pairs have weakened this month. The South Korean Won, the Philippine peso and the Indonesian rupiah have also been weighed down by the euro’s fall. The euro has been facing pressure because fiscal cuts in Europe are expected to undermine growth in the euro zone and take the sheen away from European assets.

“Rupee and other Asian currencies following the euro is likely to be a temporary phenomenon as FIIs may soon come back to emerging markets,” said a treasury chief of a mid-sized private bank. Analysts expect the rupee to rise on high growth rates and interest rate hikes in India, which augur well for investments and the local currency. While countries such as the US and Europe have continued to keep their interest rates at record lows, emerging economies like India and China are in the process of exiting their easy monetary stance.