Rupee snapshot

The Indian Rupee plunged to a 12-month closing low as traders read a Reserve Bank of India governor’s statement as it would not intervene to defend the slide as the currencies world over are losing ground against the US dollar.
Accelerating sale of debt instruments by foreign institutional investors to benefit from rising yields in the safe US treasury is aggravating the currency fall.
The rupee ended at 57.07 to the US dollar, capping the fall in the calendar year to 4.3%. It has lost 5.6% since May 2013 after the Federal Reserve hinted at tapering the so called quantitative easing that flooded the world with US dollar bills.
“A fair defence of the exchange rate can be worse than no defence,’’ governor Subbarao told a conference in Hyderabad. “The important point is that we have to be internally sure that when we enter the market we are credible, because for a central bank’s failed defence of exchange rate can be quite detrimental.’’
The narrowing yield differential between India government bonds and the US treasuries has led to the reversal of fund flows. FIIs have sold debt worth Rs.14,099 crore since May 22, 2013.
With funds going back to the US where yields are rising, traders expect rupee to breach the all-time low in the coming days. The Indian currency had hit record low of 57.32 against a dollar on June 22, 2012.
RBI said local currency weakening against global currencies should not be construed as attaining export competitiveness and the country should instead strive to attain export competitiveness by focusing on increased productivity. Subbarao stressed on the need to look at the challenges pertaining to the quality and quantum of current account deficit and its financing. The current account deficit, the excess of spending overseas than earnings, is at 6.7% of the gross domestic product. The government has taken steps like increasing import duty on gold and raising diesel prices to reduce the widening deficit and ease the pressure off rupee.