The rupee on Monday closed at its lowest levels over a month-and-a-half at 66.44 against the dollar even as demand for the greenback increased over a better than expected US non-farm payrolls data that boosts the case for a rate hike in the US later this year.
The last time the rupee closed at this level was on September 16. In intra-day trade, the domestic currency fell to 66.50 a dollar.
The benchmark 7.72% yielding 2025 bonds saw a massive sell-off on Monday with the yields shooting up to 7.749% in intra-day trade erasing all gains made during late September when the Reserve Bank of India (RBI) cut the repo rate by 50 basis points.
MV Srinivasan, vice-president-south operations at Mecklai Financial Services believes the fall in rupee on Monday is a temporary phenomenon and the currency is likely to stabilise in a matter of two to three days.
“One negative thing that can affect the rupee even at the current levels is the over-valuation by at least 10% and I do not think the Reserve Bank of India will mind the currency getting devalued a bit,” Srinivasan indicated.
He observed that the RBI has many things on its mind including inflation, export performance, etc. and since the inflation remains under control, it can afford to allow the rupee to gradually decline.
“On the question of current intervention by RBI, if the market volatility is not too high, we may not see any intervention by the central bank to prevent the rupee’s devaluation under current circumstances,” he added.
Foreign portfolio investors (FPIs) sold nearly $548 million of Indian debt in a matter of six days last week.
This continuous sell-off in the debt market by foreign investors was last seen in May when FPIs sold paper worth $1.46 billion over a period of eight days.
Since the last few weeks, sound bytes coming out of the US Fed Reserve has been highly indicative of a rate hike in mid-December when the Federal Open Market Committee holds its two-day meet.
Srinivasan says the thing to be watched out for is the tone of the US Federal Reserve after the FOMC meet in mid-December which will give clues on the future of the rate trajectory.
“If the labour data from the US continue to remain upbeat in the months ahead and other economic data too remain supportive for future rate hikes, it will be interesting to see the Fed’s timeline in the coming months for next rate hike,” he added.
The dollar index which shows the strength of the greenback against a basket of other currencies was at 98.88 levels on Monday.