Rupee Hits Record Low Below 62 A Dollar; Further Losses Expected

MUMBAI: The rupee touched an all-time low of 62.03 to the dollar in intra-day trade on Friday over fears of more Reserve Bank curbs on capital outflows.



The measures taken by the RBI earlier this week have sent out a signal that it may do more to curb capital outflows. On Wednesday, the central bank limited overseas direct investment by Indian companies to 100% of their net worth from 400%. It also cut overseas remittances by Indians to $75,000 a year from $200,000.



"The last two measures seem symbolic in nature and may not arrest the rupee's fall," said Arvind Narayanan, ED, sales treasury & markets at DBS India.



"Any sign of desperation is not good for the rupee. I would like decision makers to take two-three major steps that ensure immediate capital inflows, rather than multiple smaller steps."



The Indian currency, which had opened at 61.35 after a market holiday, recouped early losses to close at 61.65, lower than Wednesday's close of 61.43.



Rupee hits record low below 62 a dollar; further losses expected

The RBI has taken a slew of measures since July 15 to stall the rupee's slide, including raising of short-term interest rates by 200 basis points and squeezing liquidity. Curbs have been put on gold imports, a key factor in the ballooning of the current account deficit.



"While the RBI measures announced were helpful for the rupee, it (rupee) got impacted by US jobless data, which signaled that a decision to taper could be taken earlier than December," said Harihar Krishnamoorthy, head of treasury at FirstRand Bank. "This led to sharp weakness in the emerging markets on account of QE 3 pull-back." The rupee is among the worst-performing emerging market currencies, having dropped nearly 15% since May 22.



"RBI's hesitant intervention style through intermittent supply of dollars at times create volatility, as many people see it as fresh buying opportunity," said Partha Bhattacharya, deputy CEO of Mecklai Financial.



On Friday, yield on the 10-year bond rose to a record high of 8.895%. Bond yield and prices move in opposite directions. Until the rupee stabilises, bond yields are expected to remain high.



"So long as the repo facility is not available for government securities beyond 0.5% of the net demand and time liability, the market may be reluctant to add on to the G-Sec portfolio, as the market is overall surplus BY 6%. This may lead to yields having a upward bias," said Krishnamoorthy.



Traders expect bond yields to touch 9.25% if the monetary policy is not eased anytime soon.

Source:-economictimes.indiatimes.com