the equity market. This flight of dollars comes on the back of concerns that the possibility of an early taper in September could leave investors with less dollars to invest in EM assets.
The prospects of military action, on Syria by the US, following chemical weapon attacks on civilians by President Bashar al-Assad's forces have spooked investors further.
“After the latest developments, 70/$ looks more real now for the rupee,” said a currency dealer at a foreign bank. Deutsche Bank had forecast the rupee's fall to 70/$ by the end of this year. The rupee ended at 68.80/$ on Wednesday.
Dealers said that effective intervention by the Reserve Bank of India (RBI) could lessen the pain.
The central bank has intervened in the forex market in every trading session this week but that has had little impact on the currency. Measures to address the current account deficit, imports, liquidity and speculation too have fallen flat.“Two rupees in a day is definitely not orderly movement. The sharp fall has been mainly due to panic selling and the RBI needs to intervene to smoothen the market moves,” said Puri.“Intervention was seen only in the morning but during the day, the RBI has been largely absent,” said a dealer with a private bank.
With the RBI largely on the sidelines and QE tapering as well as Syrian concerns looming, FIIs may want to pull out the net $7 billion that they have invested since January this year — across equity and debt.