1. Rexit & the rupee: Here’s what happened after Rajan spiked 2nd term

Rexit & the rupee: Here’s what happened after Rajan spiked 2nd term

The rupee weakened by 0.35% on Monday to close at a nearly two-week low of 67.31 against the dollar because of heavy demand for the US currency...

By: | Updated: June 21, 2016 11:52 AM
Raghuram Rajan

Market experts believe that the central bank intervened at levels close to 67.60 to the dollar during the day.(Reuters)

The rupee weakened by 0.35% on Monday to close at a nearly two-week low of 67.31 against the dollar because of heavy demand for the US currency amid uncertainty in the wake of Reserve Bank of India (RBI) governor Raghuram Rajan’s decision not to seek a second term.

The domestic currency opened at 67.68 to the dollar and touched a low of 67.69 in intraday trade.

Market experts believe that the central bank intervened at levels close to 67.60 to the dollar during the day.

The rupee saw weakness even in the offshore market. The one-month offshore non-deliverable forward (NDF) fell by 0.49% to 67.75 to the dollar in the evening. The three-month NDF weakened by 0.50% to 68.43. Apart from the yen and the rupee, most Asian currencies were trading in the green on Monday.

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It will be interesting to note the movement of the currency at a time when so many critical domestic and global events are lined up. June 23 will see the Brexit vote, September to November will see maturity of FCNR-B deposits, and possibilities of a rate hike in the US may loom over the markets later during the year.

MV Srinivasan, vice-president, south operations, at Mecklai Financial Services, believes that the fundamentals of the currency are still intact. “Today’s fall in the rupee is only sentimental. If you look at the fundamentals, there are a lot of positive data supporting the currency — the CAD is under control, balance of payments is in surplus and FDI inflows have been significant. The government has also opened up the FDI in various sectors. Hence, the weakening in the currency is not a reflection of the fundamentals.”

Meanwhile, the equity markets rallied on Monday with the benchmark 30-share Sensex rising by 0.91%, led by strong global cues, to close at 26,866.92. The index was supported by gains in Tata Motors, Tata Steel, Bharti Airtel, Infosys and TCS.

The Sensex had surpassed the 27,000 mark earlier during the month but later witnessed some corrections post weak IIP data. On a year-to-date basis, the index has rallied 2.87%. The Nifty, meanwhile, ended up 0.84% to close at 8,238.50 on Monday.

The 10-year benchmark yield closed at 7.49%, down one basis point from Friday’s close even as the central bank conducted open market operations (OMO) purchases of government securities worth R10,000 crore on Monday.

The RBI conducts OMO purchases when there is liquidity crunch in the system.

Foreign portfolio investors (FPI) remain net sellers of Indian debt at $1.11 billion on a year-to-date basis, while they remain net buyers of Indian equities at $2.82 billion on a YTD basis.

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