Dealers said RBI action was missing in forex market even as rupee continued its free-fall for the fifth day in a row. They also said the rupee breached the 57 level due to strong dollar demand from oil importers in the wake of crude falling to near 18-month low of USD 90 a barrel levels. Union Bank of India, Treasury Head, V J Mhatre, said,
"Apart from oil importers, there was also news that some corporate houses have bought dollar for FCCB repayment." At the Interbank Foreign Exchange (Forex) market, the domestic unit opened lower at 56.80. Later, it plunged to life-time low of 57.31 before recovering some ground to end at 57.15, a fall of 85 paise or 1.51 per cent from last close of 56.30.
As rupee touched its record low of 57.37 a dollar, Finance Secretary R S Gujral in New Delhi said, "Government (is taking) action in terms of supportive measures for ensuring higher inflows of foreign exchange ... government is conscious of (situation) and is taking appropriate action." Meanwhile, the Reserve Bank directed state-owned oil firms to buy half of their dollar requirement for oil imports from a single public sector bank SBI.
"RBI letter (asking oil marketing companies to buy US currency from a single public sector bank) has come to the government. We are in correspondence with the oil companies to make sure they comply with the directive," Oil Secretary G C Chaturvedi told reporters here.
But it seems the worst is not over for rupee as treasury managers said the domestic currency could even breach the 58 level. "Rupee is likely to depreciate further to Rs 58.00- 58.40 level per dollar next week," Anindya Banerjee, Senior Manager Currency Derivatives Research Desk, Kotak Securities, said.
Meanwhile, the BSE benchmark Sensex was down by nearly 225 points at mid-session but recovered major part of its losses at the fag end, still closing down by 60 points. According to provisional data, FIIs withdrew over Rs 174 crore from equities today.
Dealers attributed fag end recovery of 16 paise to the Finance Ministry statement that RBI and the government were taking steps to arrest fall of rupee against the US currency. Dollar also gained against euro and other currencies in the overseas forex markets amid global economic growth concerns, Moody's downgrade of world's 15 biggest banks and mounting worries over euro-zone debt troubles including the size of a bailout needed to save Spain's banking sector.
"Lack of monetary easing from the US Federal Reserve has triggered a run for the US Dollar and selling in equities and commodities globally," Banerjee said.
The dollar's gain came a day after the US Federal Reserve disappointed some expectations that its policy board would decide to launch a new quantitative easing programme that would inject more money into the economy to boost growth.
The US Dollar has emerged as the top performer in the aftermath of the announcement. The euro had lost 1.25 per cent on the greenback from Wednesday, falling to USD 1.2543 from USD 1.2702.
The British pound fell in parallel to the euro, moving to USD 1.5590 from USD 1.5719. The dollar gained to 0.9572 Swiss francs from 0.9455 francs.
Markets would keep a close eye on the next week's European Union summit, which is expected to discuss measures on combatting the crisis. "In case concrete measures are not announced, then it can cause further sell-off in risk assets and rally in the US Dollar," Banerjee said.
Hemal Doshi, Currency Strategist of Geojit Comtrade, said that rupee depreciated today as there was demand for dollar from oil importers.
"Also, we saw a lot of panic buying from other players when rupee breached the strong resistance level of Rs 56.50 level per dollar during the day," he said, adding that "rupee is likely to breach Rs 58 level in the near-term".
He, however, said that RBI's decision to restrict 50 per cent of dollar buying from a PSU bank would help in easing some pressure on the currency.
RBI feels that oil firms seeking a single quote for their dollar requirement, instead of present practice of floating enquiring with several pubilc and private sector banks, would help check volatility and arrest the free-fall of the rupee. Three big state oil firms -- IndianOil, HPCL and BPCL need about USD 8 billion every month for import of crude oil and some petroleum products like LPG.
Also, HSBC in a report said, "While we have been cautious on the INR for some time and stick to our year-end USD-INR view at 57, there are rising risks that the exchange rate could overshoot. In this context, we do not yet see light at the end of the tunnel for the INR and see value in buying USD-INR in the one-month NDF."
Referring to intervention, Doshi said that there was no intervention from the central bank to support the currency. The benchmark six-month forward dollar premium payable in November settled lower at 150-152 paise from Thursday's close of 154-156 paise. The far-forward contracts maturing in May remained weak to close at 286-288 paise from 295-297 paise. The RBI fixed the reference rate for the US dollar at 56.9928 and for euro at 71.5745.
The rupee dropped further to 89.16 against the pound sterling from overnight close of 88.49 and also moved down further to 71.68 per euro from 71.46.
However, it fell back sharply against the Japanese yen to 71.20 per 100 yen from last close of 70.39.
Govt, RBI to take steps to arrest rupee fall: Pranab
Concerned over declining Rupee, which fell to an all time-low of Rs 57.37 a dollar, Finance Minister Pranab Mukherjee today said that the government and the Reserve Bank will take steps to arrest the slide of the Indian currency.
"I have asked the DEA Secretary to discuss Rupee situation with RBI Deputy Governor. DEA Secretary will take step to contain Rupee slide," Mukherjee told reporters here.
In order to contain exchange rate volatility, the RBI has asked oil marketing companies (OMCs) to purchase half of their dollar requirement from the State Bank of India (SBI).
The Rupee fell to 57.37 against the US dollar today, recording this year's biggest fall of 85 paise in a day, on increased demand from oil importers.
The currency has declined over 20 per cent in the past one year and traders expect the currency to weaken further to 58 against the dollar in future.
Besides the RBI directive, the government has been taking supportive measures to encourage flow of foreign exchange into the country, Finance Secretary R S Gujral said.
The RBI feels that oil firms seeking a single quote for their dollar requirement, instead of the present practice of floating enquiring with several public and private sector banks, would help check volatility and arrest the free-fall of the rupee.
"Government (is taking) action in terms of supportive measures for ensuring higher inflows of foreign exchange... government is conscious of (situation) and is taking appropriate action", he said, adding the exchange rate is market determined.
Attributing the current decline in the value of Rupee to volatile international situation, Gujral said, the RBI is intervening to check sudden short-term movements in the domestic currency.
The RBI has taken a slew of measures for encouraging exporters to bring back forex and giving freedom to banks to pay higher interest rate on NRI deposits.
Besides, the government has relaxed the portfolio investment norms to attract foreign investment into India.
A decline in the foreign investment flow has impacted the current account deficit (CAD), which has touched 4 per cent of GDP in 2011-12.
"Unless suitable measures are taken, if CAD increases, it will pose a burden. Consequently that needs to be tackled and government is taking adequate steps to tackle that," Gujral said.
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