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Rupee dips below 60 a dollar

statesman news service MUMBAI, 26 JUNE: The partially convertible rupee today sank to an all-time low of 60.66 in trade…

statesman news service
MUMBAI, 26 JUNE: The partially convertible rupee today sank to an all-time low of 60.66 in trade with the American dollar on the inter-bank foreign exchange market sending panic waves in the currency market.
Experts say this was on account of huge mismatch between demand and supply of the US currency. They also blamed the macro-economic mismanagement ~ particularly the handling of yawning current account of deficit ~ for the persisting sharp depreciation of the rupee.
At the end of today’s business, the badly mauled domestic currency closed at 60.72 a dollar, down 1.76 per cent or Rs 1.05. It has been the biggest intra-day fall for any currency among emerging markets, analysts say.
Around 59.98 a dollar, the Reserve Bank of India did intervene through state-run banks by selling dollars to stop the rupee sliding beyond the 60-mark but failed to prop up the local unit as the demand for dollars far exceeded the supply. Forex dealers also pointed out that as banks’ stop loss triggered ~ unable to quench dollar demand ~ the rupee plummeted to new depths.
The finance ministry once again played down the crisis in the money market saying "the panic created by the rupee fall is unwarranted." Forex dealers also say the RBI may not freely sell dollars to save the rupee considering the current modest forex reserve position which was $297 billion in the first week of June. They recall the central bank’s bitter experience of November-December 2012 when it sold more than $4 billion to salvage the rupee but without much success. The reserves are more precious in view of uncomfortable CAD situation.
However, a noted expert on foreign currency deals Mr Jamal Mecklai described the situation as: "Close to crisis. Nothing anybody does is materially going to control the fall, which is a global play." All emerging market currencies suffered losses as the dollar gained strength over the past seven sessions. However, the rupee came out as the worst performing Asian currency.
Experts say the rupee is likely to sink further since the US Federal Reserve’s statement that the economic recovery is picking up and the economy can do without more stimuli by the end of 2013. This has been pushing the dollar up in global money markets crushing weaker currencies like the rupee.
The rupee resumed today at 59.74 a dollar and was trading within a small band. The sudden pressure of dollar demand piled up around 3.20 p.m. sending it hurtling down to an all-time low of 60.66. The domestic unit failed to recover to end the disastrous day at its lowest-ever exchange rate with the dollar.
Bank of America analysts say the rupee may crash beyond 62 in due course unless the central bank announces immediate interest rate cut to slow down flight of capital from share markets. Foreign buyers are wary of shrinking profit-making opportunities in the capital market irrespective or unconvincing sops and soothing assurance from the government.
The rupee had lost more than 12 per cent since 1 May and seven per cent so far in June. Once again feeble measures to lessen the burden of current account deficit ~ which stands at 7.8 per cent of the GDP or $20.1 billion for May ~ came under sharp focus of finance ministry’s critics.
Several bankers off the record blame excessive dependence on foreign funds to cover the CAD. The share markets are also set to suffer as foreign investors have been withdrawing by hammering Indian equities.

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