The rupee fell to a new 10-month low on Monday as worries about India's expanding trade deficit and a distinct weakening bias for the currency in offshore forwards triggered dollar bids by importers and funds.
Traders said absence of central bank support for the rupee had added to the uncertainty and forced many banks to sell the rupee as it fell past various stop-loss levels.
The partially convertible local currency tumbled 0.85 percent to 44.76/77 per dollar, its lowest close since 44.765/785 on December 10, 2004. The day's decline was also the rupee's largest single-day loss in 10 months.
"Something has to be done to check this trend, otherwise given the continuing arbitrage opportunity with the NDF market, we are going to see more losses for the rupee tomorrow as well," said K.D. Lamba, chief dealer at state-run Bank of Baroda.
"And if it continues, importers are going to get panicky."
Foreign investors have been taking advantage of an arbitrage opportunity of about 0.15 rupees between the offshore and onshore forward markets in recent sessions, by buying dollars here and selling them offshore.
Signs that foreign investment in Indian stocks is slowing has also undermined a key support for the rupee, which has been under pressure from a record trade deficit and high oil prices.
India imports 70 percent of its crude and the rise in oil prices this year has along with growing machinery imports in the fast-expanding economy widened the trade deficit in April-June to $15.8 billion from $11.5 billion the previous quarter.
Latest data showed overseas portfolio investors sold a net $129.4 million of Indian shares on Thursday.
Comments
Comments are closed.