statesman news service
MUMBAI, 18 JUNE: As the rising American dollar continues to dwarf other currencies in the international market, the partially convertible rupee today suffered the most as it slipped below 58 a dollar amid heavy demand for the US currency in the domestic market from custodian banks, oil companies and importers.
Dealers say dollar is not only dear but also in short supply threatening to drive small importers out of business. The dollar scarcity, analysts say, has already stressed the rupee which opened today 0.93 per cent down at 58.24 a dollar against yesterday’s closing price of 57.87 a dollar. It closed at an all-time record low of 58.77 ~ down 90 paise ~ in trade against the dollar.
The cracking rupee took the stock market indices down as speculators were looking for an opportunity booked profits. Worry of foreigners withdrawing from stock markets is haunting Dalal Street because of weakness in the currency and rising current account deficit. Provisional data suggests foreign funds had been net sellers in equities worth Rs 2,420 crore since Friday last.
Analysts say even foreign funds are wary of illiquid markets since over years, the stock markets have been depending too much on buying by FIIs. Today even if they sell equities worth say $300 million the benchmark crashes by one to two per cent. That rules out massive dumping of stocks in a few billions of dollars.
Demand for dollars weighed heavily on the rupee as it kept depreciating throughout the day. Even in early morning deals it cracked to 58.42 around 10 a.m., say traders. The most recent factor that has hurt the unit is sell-off by foreigners who withdrew more than $4 billion from debt market since the last week of May.
Provisional numbers suggest that foreign institutional investors had pulled out another $600 million yesterday leading to further weakening of the rupee. The latest current account deficit figures crossing $20 billion for May ~ the worst among all emerging or BRICS economies ~ is likely to hasten the rupee depreciation to a new record low, fear experts. They also cite the Reserve Bank of India refused to cut its benchmark rates because of the rupee weakness. By not intervening in the currency market with dollar sale, the central bank has left it to the government to take steps to shore up the currency.
Tomorrow&’s scheduled meeting of the US Federal Reserve called to take a final decision on roll-back of its bond buying programme will be crucial for the global currency markets, say experts. Once the US Fed’s guidance is known, its impact will be felt most on the currencies of emerging economies that include India.
If Fed decided to stop or suspend buying bonds as a part of stimuli to support economic recovery, the rupee may come under more pressure, dealers fear. They point out that data emerging from the world’s biggest economy suggest vast improvement in the past few weeks.
The domestic currency and stock markets are more worried about foreign funds taking away more dollars once they receive confirmation that the US economy is really staging a gradual comeback.
The steep fall in the rupee pulled stock indices down as investors and brokerages across the global bourses are awaiting the outcome of US Fed’s policy decision on roll-back. This wariness, today gave speculators at the Dalal Street to book profits. Reversing the gaining trend of the past two days when the S&P Bombay Stock Exchange Sensitive Index had gained 498.71 points, investors selectively dumped risky assets.
The 30-stock Sensex closed at 19,223.28, down 102.59 points or 0.53 per cent. Corresponding figures for Nifty of the National Stock Exchange were 5,813.60, down 36.45 points or 0.62 per cent. In Sensex the two top gainers were Tata Steel at Rs 284.70 (up 2.89 per cent) and Bajaj Auto at Rs 1,840 (up 1.81 per cent. The top two losers were NTPC at Rs 147 (down 2.20 per cent) and HDFC Bank at Rs 657.55 (down 1.48 per cent).