Rupee breaches 75-mark vs dollar
■ Forward contracts quote at 76.20; banks prop up Re
The falling rupee on Thursday breached the 75mark against the dollar for the first time, as foreign investors continued to dump domestic stocks and bonds to hoard dollars.
However, after hitting a record low of 75.30 per dollar, the rupee trimmed losses as nationalised banks sold USD-INR futures contracts on behalf of the Reserve Bank of India (RBI). Forex experts anticipate more pain ahead for the rupee amid fear of a global recession triggered by the Covid 19 pandemic.
Despite ample liquidity measures taken by US central bank, the continuous scout for dollar around the world has weighed on almost all the counter currencies against the dollar. This has led to fears of an acute shortage of dollars, the world's most liquid currency and sent the dollar index to as high as
102.30 during the day. Policymakers across the globe have resorted to the emergency action as the rapid rise in cases of the virus infection threatens to lead the global economy into a recession.
The safe havens are also not immune and have been weakening against King Dollar. The pound fell to its lowest level since
1985 as global financial markets were hit by growing fears of a recession. Further, emerging market nations have been slashing rates, which is likely to lower the carry advantage.
Since the start of this month, foreign investors have pulled out more $10 billion from Indian stock and bond markets, the biggest withdrawal since the US taper tantrum of
2013. Emerging market currencies have been under tremendous pressure on account of outflows. For instance, since the beginning of this month, the Indonesian rupiah was the worst hit and has lost 11 per cent against the dollar, followed by South Korean won (-6.6 per cent), Turkish lira (-4.8 per cent) and Thai baht (-3.55 per cent), while the Indian rupee has fallen by 3.4 per cent in March.
Market participants are of the view that the RBI will intervene at times of steep depreciation and has so far avoided aggressive selling in rupee against the dollar. At the inter-bank foreign exchange market, the local currency opened at 74.96. During the day, it saw a high of 74.70 and a low of 75.30. The rupee finally settled at 75.10 against the greenback, down 84 paise over its previous close. The rupee had settled at 74.26 against the greenback on Wednesday.
"Last week, when the rupee's spot rate in India was at 74-plus levels the Dubai Exchange (DGCX) was quoting the forward rate at 75 and today the rupee has touched 75. Today the NDF (non-deliverable forward) market is quoting the April month forward contract rate at 76.20. So the spread between the onshore and offshore is 50 basis points. So we can easily correlate between the two and anticipate that the rupee to depreciate further if the RBI does not intervene," said Darshit Purohit from IFA Global, a forex advisory firm.
The benchmark bond yields ended 11 bps higher at 6.41 per cent. Madan Sabnavis, chief economist at Care Ratings, said, "The RBI has gotten into the swap agreements with banks to sell dollars, which should curb volatility to an extent. But we should be prepared for anything -even further depreciation as the markets have become quite unpredictable these days.