Brexit drags rupee lower, RBI arrests steep fall

Britain's decision to opt out of the European Union (Brexit) exerted pressure on the rupee, even as a likely intervention by the country's central bank tried to arrest the steep fall on Friday.

The Indian rupee weakened by 71 paise to 67.96-97 against a US dollar from its previous close of 67.25-26 to a greenback. It took a major beating during the intra-day trade.

The Indian currency dived over 1.4 per cent to an intra-day low of 68.22 to a US dollar.

Just around that time, the pound sterling dropped 11 per cent to its lowest level in more than three decades to $1.3224. It could not recoup much.

The pound sterling also weakened against the Indian rupee, it was down Rs 93.08 to a pound from its previous close of Rs 100.

The Reserve Bank of India's (RBI) reference rate for the US dollar was pegged at Rs 68.01, euro at Rs 75.10, British pound at Rs 92.95 and 100 yen at Rs 66.45.

According to currency analysts, the rupee stabilised after a likely market intervention by the RBI which sold US dollar through state-run public lenders.

Senior government authorities like Finance Minister Arun Jaitley and RBI Governor Raghuram Rajan sought to calm both equity and the currency markets.

They assured that there was no cause for panic as India's economic fundamentals remained strong along with other macro indicators.

"The Reserve Bank of India is continuously maintaining a close vigil on market developments, both domestically and internationally, and will take all steps, including providing liquidity support (both dollar and rupee), to ensure orderly conditions in financial markets," Rajan said.

Meanwhile, the stock markets too depreciated considerably.

The sensitive index (Sensex) of the BSE, which had closed on Thursday at 27,002.22 points, opened the next morning at 26,367.48 points. The key index finally closed the day at 26,397.71 points, down 604.51 points, or 2.24 per cent.

This was the biggest fall in percentage terms since May 12, 2015, which wiped off nearly Rs 3.3 lakh crore in the market capitalisation of BSE listed stocks.

The Nifty of the National Stock Exchange (NSE) recouped some losses and ended at 8,088.60 points, down 181.85 points, or 2.20 percent. Forty five of the 51 scrips that comprise the Nifty ended lower, while six bucked the trend.

Anindya Banerjee, Associate Vice President for Currency Derivatives with Kotak Securities, said: "Over the short run we expect volatility to stay very high, as central bank's intervention to stabilise asset prices and market's attempt to reduce leverage and risk create a perfect storm in financial markets."

"Emerging market currencies like rupee are exposed to this kind of volatility. Though our macros are sound, but weak growth environment and expensive valuation of risk assets can cause rupee to depreciate against US dollar and Yen."

Banerjee predicted the rupee to remain in the broad range of 67-69 over the medium term.

According to Hariprasad M.P., Senior Vice President and Head, Treasury and Banknotes Business with Centrum Direct, Brexit came in as a shocker to markets which expected Britain to remain in the EU.

"The rupee recovered on the back of recovery in equity and also suspected intervention by the RBI," Hariprasad said.

"The rupee has a strong depreciation bias and the immediate levels to watch would be 68.20. if it breaches that level, the rupee would depreciate towards 69.00."

Hariprasad added that markets await more clarity from eurozone and UK.

"The rupee is likely to open above 68 levels on Monday," he pointed out.

Bansi Madhavani, analyst, India Ratings and Research, told IANS: "In terms of negative implications, an overall environment of 'risk-off' is unlikely to revive foreign flows to India in a hurry."

In 2016, the equity segment noted a net portfolio inflow of $2.8 billion, while debt outflows stood at $1.1 billion.

During the day, foreign funds were net sellers of shares worth Rs 629.14 crore, while domestic institutional investors were net buyers, investing Rs 114.94 crore.

--IANS

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