Rupee breaches 72 to dollar for first time

The Indian rupee breached the 72 to the dollar mark for the first time on Thursday, extending losses as a rout in emerging markets kept investors on edge.

The rupee fell to a record low of 72.11 to the dollar at one point, but pared the day’s losses after mild selling of dollars likely by the Reserve Bank of India, dealers said. At 08.29 GMT, the rupee was trading at 71.9350 to the dollar compared with its previous close of 71.7750.

“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 rupee has fallen nearly 2% this month and more than 12% this year, making it Asia’s worst performing currency.

Dealers estimate the RBI on Thursday to have sold about $1 billion, which they said is not much given the pace of the rupee’s fall. The RBI anonymously intervenes in the forex market through banks, and publishes its forex reserves numbers with a week’s time lag. 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 on Wednesday there was no need for panic to the rupee’s fall while the commerce secretary, Anup Wadhawan, said the slide was due to global developments and was helping India’s exports, which rose 14.32% in July to $25.77 billion from a year earlier.

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Turkey and Argentina. The Indian rupee’s real bugbear is the price of oil. India’s currency had its worst month in three years in August as crude rallied on speculation sanctions on Iran will shrink global supplies.

The crude import bill for the world’s fastest-growing oil user surged 76% in July from a year earlier to $10.2 billion. That pushed up the trade deficit to $18 billion, the most in five years.

“Dollar demand for crude heading into Iran sanctions is not helping with rupee pressures,” said Vishnu Varathan, head of economics at Mizuho Bank Ltd in Singapore. “Demand for dollars is large, lumpy, and has been on an upward trend given the confluence of rising oil prices and actual demand pick-up.”

Brent, the benchmark of half the world’s oil including India’s, has jumped by more than 70% from a low set in the middle of last year. The commodity is trading at $77.45 per barrel, a whisker below a three-year high of $80.50 reached in May. Rising oil prices will probably see India’s current account deficit widen to 2.6% of GDP this financial year.

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