Rupee drops on fears of continued outflows

MUMBAI Wed May 9, 2012 6:06pm IST

A man uses an electronic machine to check a rupee note at a money exchange shop in Siliguri February 5, 2008. REUTERS/Rupak De Chowdhuri/Files

A man uses an electronic machine to check a rupee note at a money exchange shop in Siliguri February 5, 2008.

Credit: Reuters/Rupak De Chowdhuri/Files

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MUMBAI (Reuters) - The rupee suffered its biggest percentage fall in nearly five months against the dollar on Wednesday as investors pull out of global risky assets, sparking a new round of suspected intervention from the Reserve Bank of India (RBI).

Foreign investors have sold a net of nearly 10 billion rupees of domestic equities in the previous two sessions, as political uncertainty in Greece combines with continued worries about taxation for investments from overseas.

The falls prompted suspected intervention from the RBI when the rupee fell around the 53.80 levels to the dollar, according to five dealers.

The central bank is believed to have been active selling dollars in the past few sessions whenever the rupee approaches the psychologically key 54.00 level.

"I think the RBI will be actively protecting the 53.80/90 levels," said Hemal Doshi, currency strategist at Geojit Comtrade.

The rupee fell 1.36 percent against the dollar to 53.82/83, its biggest daily percentage loss since December 12. It had closed at 53.12/13 on Tuesday.

Despite the RBI's interventions, traders warn the rupee could soon surpass a record low of 54.30 hit in December.

India remains buffeted by the twin deficits on the external account and fiscal side, leaving it vulnerable to volatile capital inflows to plug its balance of payments.

However, to some analysts, the sharp falls in the rupee are making its valuations more alluring.

"These factors make the currency fundamentally attractive and recent positive policy moves suggest that the timing to buy the INR looks right," Credit Agricole said in a note.

It expects the rupee to trade at 50 to the dollar by end-2012.

The one-month offshore non-deliverable forward contracts were at 54.18.

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 54.0625 on a total volume of $5.42 billion.

(Editing by Rafael Nam)

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Comments (1)
Mountainpeak wrote:
India is one amongst topmost regions slated to generate world demand for virtually everything for demographic reasons only ,if not for other aspects in the near future . No wonder why most of major international firms dealing with automobiles, pharmaceutical , infrastructure,consumer durables amongst host of others are trying to expand their bases here. We are all aware of the intense efforts that are being engineered by the Governments and business community of several developed economics to persuade India to open their retail sector to FDI.Is not because they know that its beneficial to them as well .Funds will logically flow to India in due course irrespective of what S&P or for the matter the investment Gurus have say ,since its after all true that funds in due course finds a way to flow to where business is rather then remain barren in saturated economies.

May 09, 2012 10:37pm IST  --  Report as abuse
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