September 6, 2018 / 7:33 AM / in 2 years

Indian rupee breaches 72 to the dollar, markets worry over mild RBI intervention

MUMBAI (Reuters) - The Indian rupee fell sharply against the dollar on Thursday, despite gains by other Asian peers, as investors worried about the pace of its fall and a lack of strong intervention by the Reserve Bank of India (RBI).

A cashier displays 2000 Indian rupee banknotes inside a bank in Jammu, November 15, 2016. REUTERS/Mukesh Gupta/File photo

Emerging market currencies have suffered a rout on concerns of higher crude prices and tariff wars, but the rupee’s sharp fall of nearly 3 percent in the last 15 trading sessions, to stand at 72.11, from 70, has fuelled investor uncertainty.

The rapid fall in the rupee, Asia’s worst performing currency after losing nearly 12 percent this year, prompted exporters to postpone dollar sales expecting further falls, while demand rose from importers and firms looking to hedge.

Both factors have contributed to the currency’s fall in the last few days, traders said.

“The key difference between India and other Asians is the pace of fall in the currency and shallow intervention,” said Sajal Gupta, head of rates and forex at Edelweiss Securities.

“The central bank sold $24 billion during the span when the rupee fell from 65 to the dollar to 69 while it has sold just about $5 billion when it moved from 70 to 72. It is a one-way street now and the pressure is likely to continue.”

Further headwinds, such as state elections due in 2018, domestic inflation pressure, a widening current account deficit and expected rate hikes by the U.S. Federal Reserve, could aggravate the rupee’s fall compared to other Asian currencies, dealers said.

On Thursday the rupee ended at 72.00 to the dollar from its previous close of 71.7750, but off a record low of 72.11 at one point. It pared some losses after mild selling of dollars, probably by the Reserve Bank of India, dealers said.

Dealers estimate the RBI on Thursday to have sold about $1 billion, which they said was not much, given the swift fall.

“This is not intervention, it is just mild selling (of dollars) to smoothen out the volatility and not to protect any level any more,” said a senior forex analyst at a state-run bank.

The RBI intervenes anonymously in the forex market through banks, and publishes its forex reserves numbers with a time lag of a week. Typically traders can only estimate the intervention number from the weekly data.

While the sharp fall in the rupee and the RBI’s light-handed approach in the forex market have surprised several traders, government officials have not shown much concern about the currency’s rapid depreciation.

Finance Minister Arun Jaitley said late on Wednesday there was no need for a panicked reaction to the fall. Commerce secretary Anup Wadhawan said the slide was due to global developments and was helping India’s exports, which rose 14.32 percent in July to $25.77 billion from a year earlier.

“It is quite puzzling to the markets what the government and RBI want on the rupee, and why the government is sending out such signals that they are not worried about the rupee,” said a forex trader at a state-run bank.

The next Fibonacci technical level for the rupee will be 72.50-72.80 against the dollar, the forex analyst said.

Reporting by Suvashree Dey Choudhury; Editing by Richard Borsuk and Clarence Fernandez

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