The rupee closed marginally lower against the dollar on Monday as the domestic equity market remained weak and the dollar continued to strengthen against the euro.
In a choppy day of trade, the rupee settled at 49.46 against Friday’s close of 49.43. The rupee swung almost 50 paise in the intra-day. Sharp volatility is adding to the woes of market participants, who expect local currency will continue to remain volatile and under pressure due to concerns in the euro region.
The euro in early trade on Monday hit an eight-month low to $1.3363 against the dollar before recovering to above $1.35 levels. The euro also touched a 10-year low of 101.9 against the yen. The rebound in the euro was on as speculation that the European Central Bank (ECB) might cut interest rates to overcome the debt crisis.
?The huge intra-day volatility in the forex market is compelling us to book losses as stop losses are getting triggered,? said a treasury head of a state-run bank. Says Ananth Narayan G, head of South Asian currency, Standard Chartered: ?The decline in the rupee is a function of what is happening globally. External sentiments are quite weak and Europe has been extremely nervous.? Parthasarthi Mukherjee, president treasury, Axis Bank added, ?The current volatility will be a concern for the RBI. If there is a sense of further volatility, then they might intervene.?
RBI deputy governor Subir Gokarn said on Saturday that the rapid decline in the rupee is a concern. Sharp movements in the currency can be disruptive and tend to trigger panic, he said. Last week, the rupee fell 4.4%, its biggest weekly fall in over 15 years. ?It is a matter of some concern that we depreciate so much in so short a time, but we have to put that into perspective. This is a global phenomenon. There is nothing specific in the country that is driving this process,? Gokarn said.
Standard Chartered Bank lowered the short-term rating on rupee to neutral from overweight and forecasts the rupee to touch 51 to a dollar by December. ?In addition to global developments, central bank intervention is an important swing factor for USD-INR in the near future. The risks of significant intervention have increased in the wake of the sharp increase in volatility over the last few days,? the report said.