22.10.11

Rupee below 50/$

The Indian rupee dipped below the 50 mark on Friday — a 30 month low — as uncertainty about the Eurozone continued. This was also further compounded by the selling pressure in the domestic stock market, including from foreign funds even as demand for dollars rose from oil and gold importers. The rupee, after dipping to a low of 50.32 to a dollar — its lowest level since end-April 2009 — recovered partially to close at 50.03. On Thursday, the Indian currency had closed at 49.81 to the greenback. Market players said the uncertainty about the bailout package for the Eurozone, expected to be finalized on Sunday in Brussels, weighed on the strength of the euro against the dollar with the latter showing strength. As a result, the rupee also weakened against the dollar. This was compounded by the fact that FIIs were sellers in the stock market, which automatically leads to buying of dollars by these investor group, and hence the strength of the greenback. In addition, oil companies that import crude bought dollar, while gold importers bought the same currency anticipating higher demand for the yellow metal during the current festive season, market players said. Looking at the 29-paise intra-day recovery, dealers also suspected some support to the rupee by the Reserve Bank of India (RBI). Although time and again the central bank has said that it does not target any level for the rupee but intervenes only to check excessive volatility in the inter-bank forex market. While a weak rupee would add to the bottomline of the companies which are big exporters, like software, gems and jewellery, and pharma companies, importing goods into India will become expensive. In addition, a weak rupee could also neutralize the positive impact of a fall in crude oil, the biggest import item for India. Of late there have been talks about increasing the limit for FIIs in government bonds, a step, which market players said, could help in limiting volatility in the forex market and strengthen the rupee.

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