25.5.13

Rupee touches 56.01



The rupee weakened sharply in the intra-day trade to touch an eight-and-a-half month low of 56.01 before closing at 55.59 in the interbank foreign exchange market on Thursday, down 11 paise from its previous close of 55.48.
The sharp drop took the market completely by surprise. Dealers said that they had been expecting a correction in the rupee after yesterday’s fall as there were no major concerns on the external front. The short term outlook for the rupee continued to be positive as oil and gold prices had softened and multi-billion dollar inflows were expected on account of Unilever’s open offer for Hindustan Lever and Qatari Foundation’s $1.26bn investment in Bharti Airtel.
Dealers said that only explanation for the fall was that there was general panic following the 7% fall in the Nikkei, which was coupled with the release of China’s purchasing manager’s index data which pointed at a slowdown and fears of US Fed withdrawing stimulus.
Given the absence of any strong reasons for the fall, conspiracy theories continued to abound in the market. One of them was that the central bank was following a weak rupee strategy, flexing its muscles only when the rupee gained by buying over a billion dollars in the foreign exchange markets in recent months. A weak rupee, besides discouraging imports, would also encourage capital inflows. There was also speculation that the fall could be triggered by some players arbitraging between the spot and the non-deliverable forward markets overseas where the rupee trades lower than in domestic trades.

No comments: