RPT-India rupee hits 4-mth low in 'helpless' slide

Thu May 3, 2012 5:49pm IST

Related Topics

(Repeats to widen distribution)

* Suspected RBI intervening unable to prevent rupee slide

* Admin measures seen in place of aggressive intervention

* USD/INR on course to test record high of 54.30-traders

By Subhadip Sircar

MUMBAI, May 3 (Reuters) - The rupee slid to an over four-month low as India's policy uncertainty and worsening economic fundamentals are sparking concerns a rout is in the making, one that the central bank will be unable to prevent.

The Reserve Bank of India was seen stepping in to defend the currency via dollar sales for a second consecutive session on Thursday, which helped slow the pace of falls, but not expectations the rupee could head to the record low levels hit in December.

The central bank's hands are seen tied because of India's relatively low foreign exchange reserves and a widening current account deficit aggravated by foreign capital leaving the country.

Any further intervention would also worsen an acute liquidity shortage that has seen repo borrowings surge for seven consecutive sessions.

This has led to speculation the RBI may resort to administrative tools like those it introduced in mid-December after the rupee had hit a record low of 54.30.

"INR looks increasingly helpless in the face of large trade deficit and recent outflows of foreign equity and bond capital," said Dariusz Kowalczyk, senior economist and strategist at Credit Agricole CIB.

"In the short run don't catch the falling knife," he added. "Wait for the RBI measures before jumping in."

The rupee fell to a low of 53.47 to the dollar on Thursday, a level last seen on Dec 29, 2011, before pulling back to close at 53.41/42 levels. It had closed at 52.96/97 on Wednesday.

The next resistance for USD/INR is seen 53.51, its near term high on Dec 29.

Continued uncertainty over a new tax proposal has also been a recent sore point with foreign investors.

The finance minister is gearing up to introduce to parliament a bill containing the controversial rules, and investors are waiting to see if it includes any amendments.

Foreign fund inflows, critical to bridge the country's current account gap have been drying up. Net portfolio outflows stood at $540 million over the last two months compared with $13 billion inflows in January-February.

The one-month offshore non-deliverable forward contracts were at 53.32.

In the currency futures market, the most-traded near-month dollar-rupee contracts on the National Stock Exchange, the MCX-SX and the United Stock Exchange all ended around 53.725 on a total volume of $4.2 billion.

FILED UNDER:
Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.

  • Most Popular
  • Most Shared

REUTERS SHOWCASE

Earnings Season

Earnings Season

Reliance Q4 sales rise, refining margin narrows.  Read 

Innovative Solution

Innovative Solution

Turning smog into jewels - a Dutch designer's solution to Beijing's pollution.  Video 

Insider Trading

Insider Trading

Rajaratnam's brother loses bid to dismiss insider trading charges.  Full Article 

Literary Giant Dies

Literary Giant Dies

Mourning and memories in Gabriel Garcia Marquez's languid hometown.  Full Article 

S&P on India

S&P on India

S&P: India's ratings to depend on next govt econ, fiscal policies.  Full Article 

Ambitious Aim

Ambitious Aim

In green car race, Toyota adds muscle with fuel-cell launch.  Full Article 

Bond Market

Bond Market

A star abroad, RBI boss riles bond traders at home  Full Article 

Reuters India Mobile

Reuters India Mobile

Get the latest news on the go. Visit Reuters India on your mobile device.  Full Coverage