As concerns over the country’s current account deficit (CAD) weigh, rupee continues to remain near two-month low, even as latest data show that foreign institutional investors (FII) have been investing close to $1 billion in equities and debt.
FIIs have invested nearly $1 billion in share and bond so far in November. In the previous months, FIIs have poured in $3 billion.
The problem is clearly not dearth of dollars, but the size of the current account deficit that needs to be replenished.
Rupee has hit a 10-week low in intra-day trade on Wednesday before closing at 55.13. Rupee is 12% weaker from the 48.61/$, the high of 2012 it touched in February.
Currency dealers said the volatility of the rupee is expected to continue as European debt crisis is far from over.
On Wednesday, rupee opened weak because worries over Greece’s bailout package heightened and reduced risk appetite for high-yielding currencies.
?Rupee is now closely following the movement of the euro and dollar. It has more to do with overseas risk appetite rather than domestic factors,? said a dealer at a foreign bank.
Intermittent dollar demand from oil and gold importers also clipped rupee gain. ?The greenback will find strong support at 55.10-54.80/$ where importers will be seen in hurry to cover near/short term dollar payables,? said Moses Harding, head of research at IndusInd Bank.
Besides weak risk appetite globally that has been weighing on the rupee, worries over country’s twin deficits have also kept the currency under pressure.
India’s current account deficit was 3.9% of gross domestic product in April-June. Latest trade data showed a sharp rise in gold imports, the key reason for a large import bill and a larger trade deficit.
Notwithstanding the negative factors, market players are hopeful the sustenance of FII inflows may help the rupee albeit modestly.
HSBC predicts the rupee to rise to 52/$ by December while YES Bank expects it to be around 52-54/$ and rise to 50-52/$ by March.