Rupee hits new low, but no panic

Mumbai, January 30 : | Updated: Jan 31 2002, 05:30am hrs
The rupee slid to a historic low on Wednesday, but traders said fears of central bank intervention were likely to keep it from dipping further. Traders initially believed the rupee’s drop was driven by the central bank looking to adjust the overvalued currency downwards, but later reports suggested it was the result of huge commercial outflows for an overseas dividend payment and for covering some currency swaps.

The rupee sank to 48.6250 per dollar in morning trade, compared with its previous lifetime low of 48.4300 hit on September 17, but recovered in later deals on dollar sales by state-run banks, presumed to be on behalf of the central bank looking to soften the slide.

The rupee clocked a new closing low of 48.50/52, and has lost nearly half a percentage point this week. Analysts estimate that the rupee is still overvalued by more two perc ent in terms of its real effective exchange rate (REER) — or trade-weighted basis — against its five major trading partners: the United States, Japan, Britain, Germany and France.

With the euro and sterling losing ground against the dollar in recent sessions, a stronger rupee is the last thing struggling exporters want to see, especially with the global economic outlook still showing little signs of recovery.

India’s exports reversed a five-month downtrend in November but have grown just 0.5 per cent on year to $28.85 billion in April-November and the government has already cut its export growth target for 2001/02 to three per cent from 12 per cent.

Traders say state-run banks, which usually act on behalf of the central bank, bought dollars in recent sessions, triggering the slide, while inflows have been strong despite the fears of war with Pakistan.

“The Reserve Bank of India (RBI) appears to be comfortable with the current weakness of the rupee,” said MR Madhavan, head of research at Bank of America. “A further downward movement may be capped by intervention fears,” he said.

The Bombay Stock Exchange’s benchmark index Sensex ended down 0.44 per cent, but traders said the rupee’s slide did not impact trade. “I think it (the rupee’s fall) is a normal correction and we still have high forex reserves which is comforting,” said Prashant Jain, head of equities at Zurich India Asset Management. Except for some routine month-end dollar purchases by state-run oil companies, demand from companies has been low in the past few sessions.

“Importers think there is no need to panic as reserves are high, global oil prices are relatively low and inflows continue to outstrip demand for dollars,” a dealer in a private bank said.

Forex reserves topped a record $49.225 billion on January 18, according to data released at the weekend, boosted by foreign direct investments, fund inflows and repatriations by overseas Indians and exporters.