Re crashes to 63.22, ends at record low

The domestic currency on Monday breached the 63-level for the first time against the US dollar in Monday’s late evening trade at the Interbank Foreign Exchange market on continued higher demand for dollars, especially from banks and oil importers.

Experts believe that the sliding rupee may overshoot the oil imports bill, which in turn will expand the current account deficit (CAD).

The rupee tumbled by 148, or 2.3 per cent, to 63.13, the biggest single day drop since September 22, 2011, in spite of a slew of measures taken by the Reserve Bank of India (RBI) and the Finance Ministry to arrest the slide. “These steps are not helping the rupee, instead proving counterproductive," said forex traders in Mumbai.

Analysts say the RBI's liquidity-tightening measures are doing more harm than good to the market by pushing up interest rates, and the government’s steps are too little.

In fresh measures to shore up the rupee, the government has banned duty-free import of flat-screen televisions by air travellers from August 26. Now, air travellers are allowed to bring in an LCD, LED or plasma television for personal use without paying customs duty.
The step may have been the outcome of Finance Minister P Chidambaram’s long meeting with senior ministry officials on Monday to take stock of the current economic situation and deliberated on steps to improve it. The minister is scheduled to meet the Department of Economic Affairs on Tuesday.

Yield on government bonds also crossed the 9 per cent mark during the trade, closing at 9.25 per cent, as against 8.8 per cent at close last Friday.

The dollar-rupee exchange rate reached a high of 63.22 and a low of 62.20. The rupee was seen continuing with its free-fall despite the recent measures taken by the RBI.

Tracking the currency slide, the stock market, too, fell by almost 460 points intra-day, or 2.47 per cent. The rupee was down by more than 1.6 per cent during the day.

However, there was no sign of the central bank’s intervention in the forex market in spite of a massive weakness in the rupee.Pivotals continued to trade in the red for the second consecutive day, and the Sensex was down by 1.56 per cent at 18,307 points at close, while the Nifty slid 1.69 per cent to settle at 5,414.75 after hitting an intra-day low of 5,360.65.

Globally, the currency market traded on a very quite note as the economic calendar remained barren. The only movement was witnessed in the USD/JPY (US dollar/Japanese yen) pair. It initially shot up to a high of 97.85 as the Nikkei rallied on the open, but then sold off sharply on the correction in stocks, only to stabilise around the 97.65-level.
With no data from the US side on Monday, the dollar continues to suffer from the doubts regarding the taper and the markets may not get any additional clarity on that issue until the release of the FOMC minutes this Wednesday.

Commenting on the rupee movement, India Forex Advisors CEO Abhishek Goenka said: “Falling by more than 1.5 per cent during the day, the rupee continued its slide against the US dollar and breached the level of 63. The host of measures taken by the RBI in recent weeks has failed to revive sentiments.  Problems on the domestic front and global uncertainties are putting severe pressure on the rupee.  On the global front, US treasury yields are increasing, while the US dollar is trading flat, and locally, Indian bond yields are also increasing, which indicates that currently the markets are quite directionless. This calls for a cautious approach.”

To support the rupee and stem the CAD, the government last week hiked the import duty on gold to 10 per cent from the earlier 8 per cent. It also banned imports of gold coins and medallions. According to the government, the step may lower the import bill by $4 billion and help save scarce dollars, but the measures only deepened the sense of crisis in the market.