The rupee on Monday crashed to new lows, hitting 72.67 against the dollar in intra-day trade before staging a mild recovery to close at 72.44. The currency has lost nearly 12% since January. The premium on three-month forward contracts jumped 9 basis points on Monday to around 4.52% over Friday’s close. A month ago, on August 10, the premium on the forward contract was at 4.32%.
Currency market experts said demand for dollars had picked up following importer demands over the weekend. The rupee further slipped to yet another record low of 72.67 during intra-day trades and closed the session at 72.44 against the dollar. Dealers found the Reserve Bank of India (RBI) intervening at certain levels but the quantum remained unknown.
The fall in the rupee was in sync with other emerging market currencies, which remained volatile owing to fears of trade tariffs and the US Fed’s stance on continuing to hike rates further. The dollar index — dollex fell over Friday’s close to 95.062 levels. In the offshore markets, the three-month non-deliverable forwards (NDF) stood at around 73.07/$ on Friday, but rose to about 73.57/$ by the time Indian markets closed on Monday.
A month ago, the NDF was trading at 69.83/$. Further, the perception of foreign investors about rupee assets also plays into NDF betting. The sentiment in the NDF markets coupled with a negative view on rupee assets was the reason behind the rupee’s massive fall to the all-time closing low of 72.44 on September 10, currency dealers said. The linkage between the offshore and onshore dollar/rupee rates is stronger during episodes of depreciation, experts added.
Bond yields closed the trading session on a nearly four-year high at 8.16%. Previously, similar levels were seen in November, 2014. Dealers said the rise in yield was primarily because of rupee depreciation that pressurizes the inflation forecast. The crude oil prices remained elevated at $77.66/barrel.
AMFI chief executive NS Venkatesh believes this is the right time for the RBI to carry out open market operations (OMOs), primarily to better the liquidity conditions and bring a positive sentiment. “Once money is pumped in through OMOs, there is a likeliness that the yields will stabilise at around 8.10% levels and the rupee too should correct to 71.5 levels.”
Venkatesh believes that an NRI bond issue is not required at this point in time given that the RBI has enough reserves and the macros are in favour of the rupee. “The RBI has over $400 billion in reserves, the macro-economic factors are positive, the current account deficit (CAD) can be brought to manageable levels with the crude oil prices stabilizing,” Venkatesh concluded.