Rupee weakens further

With the market concerned that the yuan might be devalued further, the rupee weakened for the second straight day against the dollar, despite intervention by the central bank. As dollar demand from importers intensifies ahead of the month-end, the 66/dollar might be breached next week.

After touching an intra-day low of 65.91/dollar on Friday, the rupee ended at 65.83 a dollar, against its previous close of 65.55, a fall of 0.43 per cent. For the week, the currency weakened 1.3 per cent against the dollar. Currency traders said had it not been for some intervention by the central bank, it would have touched the 66/dollar mark on Friday.

"A lot depends on what happens globally. If the US market goes down, RBI will probably have to do something. The market is so crazy that nobody really knows what is going on. I do not think even RBI would like to see the rupee fall much from where it is today," said Jamal Mecklai, chief executive of Mecklai Financial Services.

On Thursday, RBI Governor Raghuram Rajan said India didn't have much to worry about if the Chinese currency remained at current levels, though more falls could result in woes, including "tit for tat" actions by other countries.

On Friday, there was dollar buying among importers, which typically intensifies during the end of the month. As a result, there might be more pain in store for the rupee, though experts believe RBI will keep stepping in to arrest volatility, due to which depreciation will be gradual.

"Today's weakness in the rupee was due to the fall in stock markets. The market is expecting further devaluation in the yuan. The world market is watching how they will manage it. If the rupee depreciation continues, whatever expectation of an RBI rate cut is there, that might not materialise," said Suresh Nair, director, Admisi Forex India.

So far this month, the rupee has depreciated 2.63 per cent against the dollar, while it has declined 4.43 per cent since the beginning of the year. Now, it is trading near levels earlier seen about two years ago (September 5, 2013, when it had closed at 66.12 a dollar). "The rupee is weakening partly because RBI has allowed it to weaken. I do not think it is something to be so worried about at this point. I think it should stabilise around these levels. But of course, it also depends on how other currencies move. The depreciation of the rupee should be good for exports. But if competing currencies weaken, the net effect will pretty much be a washout," said A Prasanna, chief economist, ICICI Securities Primary Dealership.