New low: Rupee touches 54.45 against dollar

Mangaloretoday/ DHNS

Mumbai, May 16, 2012: It may plunge to 56-level by June-end. The rupee slumped to a new record low of 54.45 against the dollar, on Wednesday,  adding pressure on a currency already on fire due to country’s large current account and fiscal deficits.

During the day, it dropped to as low as 54.36 to the dollar, breaching its previous record low of 54.30 set in December last. 

 

The currency’s slide came just before Finance Minister Pranab Mukherjee said in New Delhi that he had asked his ministry to boost efforts towards fiscal consolidation. Government spending has been a concern for financial markets and a factor pushing the rupee lower.

The steps taken by RBI to support the rupee has fallen short even as RBI Deputy Governor K C Chakrabarty stated that the central bank intervenes in the forex market only to curb volatility and not the slide. “We don’t intervene to arrest the rupee fall, we intervene only to arrest the volatility, you must understand the difference,” he said on the sidelines of an event here.

 Also, the force of dollar demand is such that RBI can do little to stem the slide, an RBI official involved in currency management here pointed out while saying: “We may prop rupee for sometime by this way or that, but it is not enough.” The central bank has been selling rupee in spot market to restrict the fall of the currency without much gain.

The declining foreign exchange reserves also limit the RBI’s ability to intervene in the local market and the burden of huge import bill also lowers the impact of intervention. Even the recent steps taken by RBI related to the exchange earner account and bank overnight limit didn’t provide much support to the rupee.

Widening gap

India’s trade deficit has been increasing since April 2011 with imports rising faster than exports.The outflow of dollar from the stock markets is also adding to the problem, so are the international factors. Said India Forex Advisors CEO Abhishek Goenka “The Euro declining against the dollar and the dollar index gaining strength above 81 levels can see rupee creating new low against the dollar.”  Although world oil prices are falling, the country is not getting the benefit of weakening crude because of the falling rupee, pointed out SMC Global Securities Strategist Jagannadham Thunuguntla.

Union Bank of India’s economist Nitesh Ranjan said “It is difficult to tell at what level Rupee will settle; global weakness is adding pressure while our twin deficits are already recognised negatives and domestic macro scene too is weak.” Analysts also pointed out that significant firming of the dollar is also adding to the rupee depreciation pressures.
The rapid fall may get further intensified as HDFC Bank’s Ashutosh Raina feels rupee may soon touch 55 to a dollar.