Markets drag rupee to 28-month low

A volatile day in markets across financial and commodities segments saw the rupee slide sharply to a 28-month low, while equities and crude oil prices oscillated between sharp losses and a determined recovery.

The rupee's fall mirrored that of other emerging economy currencies, led by a global sell-off in equities.

The local currency closed at 67.29 a dollar, after opening at 66.96, down 0.656 per cent from its previous close.

The rupee was the second worst loser in Asia after the South Korean won that fell 0.772 per cent against the dollar. Overall, all Asian currencies fell on Thursday.

The dollar index, which measures the greenback's strength against major global currencies, was down 0.25 per cent to 98.688. According to currency dealers, the Reserve Bank of India (RBI) did not intervene to stop the rupee crossing 67-levels, but the central bank did step in to prevent the local currency falling sharply. The rupee recovered a little in afternoon trade after exporters also started selling dollars, but fell again before the close of the market hours.

"The rupee should not weaken much as relative to other emerging markets, India's situation is much better. But the currency will come under pressure if there is a global sell-off," said Naveen Mathur, associate director - commodities and currencies, Angel Broking.

Mathur expects the rupee to climb back to around the 66.50 a dollar-level even as in the interim, he expects the local currency to touch the 67.50 level.

Bank of America-Merrill Lynch continues to expect that RBI would want to anchor the rupee at 65 to a dollar.

The stock markets ended with losses after a highly volatile trading day in which the benchmark Sensex swung 545 points intra-day. The fall was led by the weakness in global equities, continued sell-off by overseas investors and a fall in the rupee. European and other Asian markets also fell after US markets posted a two per cent drop on Wednesday. The Sensex settled 81 points or 0.33 per cent lower at 24,772.97. The 50-share Nifty lost 25.6 points, or 0.34 per cent to end at 7,536.8. Both indices hovered around their 19-month lows. Foreign investors sold shares worth over Rs 1,200 crore on Thursday, while domestic institutions were strong buyers at Rs 1,526 crore, provisional data provided by exchanges showed. Worries over the health of China and the global economy have seen the benchmark Sensex drop 5.15 per cent in 2016. Foreign investors have pulled out over Rs 4,500 crore from the stock markets during this period.

The rupee's loss is expected as against its trading partners, the rupee is overvalued. From 2013 to now, it has strengthened about 15 per cent relative to its trading partners.

Brent crude oil also swung between gains and losses around the $30 a barrel-level as Iran moved closer to increasing exports, which will increase supply further. Later in the day, oil futures advanced over one per cent in London following the attack in Indonesia, compared to a 1.9-per cent decline earlier in the day. Brent oil prices fell below $30 a barrel on Wednesday for the first time since April 2004 amid speculation that the sanctions on Iran may be lifted next week.