Central bank steps in as ~ slides below 75
The rupee crossed 75 to a dollar on Monday, as domestic equities witnessed a huge sell-off. The local currency closed at 75.06 to a dollar, from its previous close of 74.73. The Reserve Bank of India reportedly intervened in both the over-the-counter and exchange markets to stem the rapid fall, said currency dealers.
The rupee crossed 75 to a dollar on Monday, as the domestic equity markets witnessed a huge sell-off.
The local currency closed at 75.06 to a dollar, from its previous close of 74.73, having declined to 75.145 in intra-day trade. The Sensex crashed 1,707.94 points, or 3.44 per cent, to close at 47,883.38 points on Monday.
Among currencies, the rupee was once again the worst performer in the region, falling 0.42 per cent against the dollar even as other Asian currencies also posted a decline.
The Reserve Bank of India (RBI) reportedly intervened in both the over-the-counter and exchange markets to stem the rapid fall, said currency dealers. The dollar remained largely flat against other major currencies.
They added that foreign investors continue to wind up their carry positions in the offshore market, causing the rupee to fall. However, a correction in the rupee was somewhat overdue.
It had remained the bestperforming currency in the region for well over a month, till the RBI policy last week in which the central bank announced its own version of quantitative easing by committing to buy ~1 trillion of bonds from the market in the first quarter of the present fiscal year.
“There is now excess liquidity of ~7 trillion in the reverse repo basket, and there will be an infusion of ~25,000 crore on the 15th of this month. So much liquidity in the system is not good news for the rupee,” said Madan Sabnavis, chief economist at CARE Ratings.
“Add to this the panic caused by the pandemic-induced lockdown, and the news of a shortage in vaccines, and the economy does not look as strong as was conjectured,” Sabnavis said.
According to Sriram Iyer, senior research analyst at Reliance Securities, the rupee can technically reach 75.70 to a dollar. “The USD-INR Spot pair could trade in the range of 74.90-75.40 levels in the coming session,” Iyer said.
The rupee has now become one of the worst-performing emerging market or EM currencies, on a weekly basis — even below the Turkish lira and Russian rouble.
Yet, on a monthly and yearto-date basis, the rupee is reasonably well-placed. During this period, while the rupee has lost 2.6 per cent against the dollar, the lira and Brazil’s real have lost nearly 10 per cent.
Pressure on the rupee is expected to continue for some more time, but dealers say the local currency should ideally scale back when dollar flows resume. In any case, the rupee was relatively overvalued against competitors. The decline has corrected some of these imbalances.