Brexit heat: Rupee sinks to four-month low of 67.96

WITH the United Kingdom choosing to exit the European Union post Thursday's referendum, currencies across the world saw decline. The rupee declined 1.07% to close at 67.96 to the dollar on Friday— the lowest closing level since March 1.

The Indian currency fell to as low as 68.21 to the dollar in intraday trade before seeing some recovery on possible central bank intervention. The British pound plunged 11.08% to 1.32 to the dollar on Friday before recovering to 1.37.

Most Asian currencies except the Japanese yen ended in the red. The Indonesian rupiah was down 1.06%, Thai baht fell by 0.62%, Malaysian ringgit by 1.86%, and the Singapore dollar by 1.3%. The yen rose 3.9% against the dollar.

On a year-to-date basis, the rupee depreciated 2.65% against the dollar. The Indian currency had hit an all-time low of 68.845 to the dollar in August 2013, led by capital outflows with the US Federal Reserve deciding to taper its bond purchasing programme.

Meanwhile, the domestic equity markets witnessed steep declines, with the 30share benchmark Sensex falling by 4.04% in intraday trade to 25,911.33. It later recovered considerably to close at 26,397.71 on Friday, a fall of 605 points. The broader 50share Nifty declined by as much as 4.15% in intraday trade to 7927.05, but recovered to close at 8,088.60.

Currency expert AV Rajwade said one of the uncertainties that is likely to loom over the rupee is the appointment of the next governor of the Reserve Bank of India. “We will not know until September about the next central bank governor. That is one of the factors that is likely to impact the rupee in some way. Till then we sort of have a vacuum and it is hard to predict a particular level for the rupee,” Rajwade said.

In the offshore rupee market, the one-month non-deliverable forward (NDF) was trading at 68.43 to the dollar, down 1.12%. The threemonth NDF was trading at 69.17 to the dollar, down 1.21%.

Meanwhile, RBI governor Raghuram Rajan said the maturity of FCNR-B deposits is not a worrisome event. “As far as the FCNR-B goes, I have said repeatedly that we are prepared in terms of outflows, and of course we have been taking delivery of currency steadily over time. When the time comes, we will have plenty of additional dollars to repay whatever deposits flow out. I think it is really premature at this point to talk about some new rollover facility. I don't think at this point of time this event is particularly worrisome for us and we should be able to manage it,” Rajan said.

On a year-to-date basis, foreign portfolio investors (FPI) remain net sellers of Indian debt at $1.84 billion, while they are net buyers of Indian equities at $2.84 billion.