The rupee on Tuesday crashed to newer lows, hitting 72.7388 against the dollar in intra-day trade before recovering to close at 72.6950. The currency has lost 3.56% in the past 10 sessions alone and over 12% since January. In the offshore markets, the three-month non-deliverable forwards (NDF) were ruling at around 73.66/$ on Monday but rose to about 73.88 after Tuesday’s close. A month ago, the NDF rates were in the region of 69.83 versus the dollar. Foreign portfolio investors, who were buyers in the earlier part of the month, have sold $332 million worth of stock on Monday and Tuesday. In the debt markets, they have sold bonds worth $686 million in September so far.
The sentiment in the NDF markets, coupled with a negative view on rupee assets, was the reason behind the rupee’s massive fall to the all-time low of 72.6950/$ on September 11, currency dealers said. The linkage between the offshore and onshore dollar/rupee rates is stronger during episodes of depreciation, they added. The premium on three-month forward contracts jumped 9 basis points (bps) on Tuesday to around 4.612% over Monday’s close. A month ago, on August 10, the premium on the forward contract was at 4.32%.
Jayesh Mehta, MD & Treasurer of Bank of America, opines that while during the initial days of the rupee depreciation the dollar appreciation was the main reason, the fall now is more driven by momentum and sentiment. “The depreciation in the currency is majorly because of the momentum and not because of the fundamentals.
The Indian currency has depreciated more than the other emerging market currencies in the past one month or so,” Mehta pointed out. The mounting tensions of possible US sanctions on the oil supply from Iran have left prices of crude oil elevated and impacted all the EM currencies, India being no exception.
Dealers found the RBI intervening during the day’s lows on Tuesday, the quantum however remained unknown. Experts say the RBI could possibly consider a few tools to correct the rupee depreciation. First, it could supply dollars to the oil marketing companies —outside the market — so the dollar demand in the market reduces. Second, there is a possibility of the government considering foreign currency non-repatriable account deposits, similar to the $30-billion issuance in late 2013.
Bond yields closed the trading session at a nearly four-year high at 8.184%. Previously; similar levels were seen in November 2014. Dealers said the yield will continue to rise as long as the currency is on a depreciating path. Crude oil prices remained elevated at $78.14/barrel.