MUMBAI: The value of the rupee fell to 50 per US dollar for the first time ever on Wednesday (in terms of the last traded price of the day).
The rupee had first pierced the mark on October 25, when it touched 50.17$ in intra-day trading, but then recovered to close at 49.96$. Wednesday’s fall was basically because of four factors:
. A surge in demand for dollars from
Indian importers, who rushed to buy fearing a further decline in the rupee’s value. Importers buy dollars to pay off their dues abroad.
2. Continuous selling by foreign institutional investors in the stock markets. Exiting investors convert their rupees earned from selling equities into dollars and remit them abroad. This increases the demand for dollars in the local market.
3. Banks trying to take advantage of a roughly 1.5% difference in the rupee-dollar exchange rate in India and in the Singapore-based ‘non-deliverable forwards’ market.
4. Exporters, who are sitting pretty on their dollar earnings, refusing to convert the money into rupees thinking they will get more for their dollars in the near future.
“I still feel there is very good room for the dollar-rupee to go up to 52,” V Kumar, chief dealer with State Bank of Travancore, told Reuters on Wednesday.
The main factor weakening the rupee in the last 6 trading days has been the Rs2,712 crores worth of selling by FIIs in the equity market.
As a result, the rupee fell 5.5% in this period from Rs47.38$1 on November 10 to Rs50$1 on Wednesday.
But foreign exchange dealers are more worried about the lack of dollar sales from exporters as fears of global recession kick in.
Subramaniam Sharma, consultant, Greenback Forex Services, said exporters have already started cancelling their pre-planned dollar sales and are also limiting their current sales to stop-losses.
“They are cancelling previous bookings means that they are buying back dollars. When the rupee was around 40$1 last year exporters had sold for 2-3 years ahead which now they are cancelling,” he said.
Forex dealers say dollar supplies have reduced substantially and any increase in demand for the US currency pulls the rupee down very quickly.
Agam Gupta, head of forex trading at Standard Chartered bank said demand from importers has been significant in the last few days.
Forex dealers are also awaiting a signal from the Reserve Bank of India on the rupee. They said the RBI has been selling dollars —- estimates are it sold more than $150 million on Wednesday —- in order to protect the rupee from falling too much.
“But RBI doesn’t seem to be panicking because it is not pulling out all stops to defend the rupee,” said another trader with a US-based bank, who did not wish to be named because he is not authorised to speak.
