Rupee dips to new record low, recovers after sovereign intervention

Mumbai : The Indian rupee recovered partially from the record low of 64 against a dollar it touched early Tuesday and stood at 63.25 after an apparent intervention by the Reserve Bank of India (RBI).

The partially-convertible rupee touched a new low of 64.11 in pre-noon trade at the inter-bank currency market here down 1.6 percent, surpassing the previous record low of 63.30 Monday. Later rupee recovered and closed at 63.25 against a dollar at 5.00 p.m down 0.2 percent from Monday’s close of 63.13.

“The sovereign intervention is expected to continue. The concerns over liquidity crunch as Fed (Federal Reserve) is expected to withdraw stimulus could adversely affect the rupee, as foreign institutional investors (FIIs) shy away from Rupee assets,” Anindya Banerjee, currency expert, Kotak Securities told IANS.

The weakness in the rupee has affected the Indian equities markets which have seen FIIs turn net sellers, as prospects of investing in the US economy grows more promising and concerns on US

The 30-scrip sensitive index (Sensex) of the S&P Bombay Stock Exchange (BSE), which opened at 18,142.83 points, closed at 18,246.04 points, down 61.48 points or 0.34 percent from the previous day’s close at 18,307.52 points. The Sensex touched a high of 18,306.46 points and a low of 17,970.98 points during the day’s trade.

On Monday, when the rupee posted its biggest single-day loss in nearly two years, it slipped 2.3 percent. This led to a massive sell-off with the Sensex falling 290.66 points or 1.56 percent.

Last Friday and Monday’s trade sessions have eroded market capitalisation of around Rs.3.10 lakh crore. The Indian currency has lost nearly 15 percent of its value since the beginning of the current financial year.

The Indian currency has hit new lows four times in the past two weeks despite a series of measures announced by the government to curb current account deficit and revive economic growth by streamlining reform process.

The government has tried to salvage the situation without much success. On Monday, Finance Minister P Chidambaram held a three-hour-long meeting with key officials to take stock of the situation.

Senior finance ministry officials, including secretaries of departments of financial services, revenue, expenditure and disinvestment attended the meeting at the North Block in the national capital.

In the evening, the revenue department of the Finance Ministry notified a levy of 36 percent in customs duty on flat panel LCD and LED television sets that passengers were allowed to bring along with them as part of the duty-free baggage allowance of Rs.35,000.

Before this, the government had raised import duty on gold and silver.

RBI had also announced several measures, including curbs on Indian firms investing abroad and outward remittances and putting stricter control on banks dealing in foreign currencies, in a bid to control the outflow of money.

The government had also recently announced a slew of reform measures to increase foreign investments like allowing foreign ownership to go from 49 percent to 74 percent in asset reconstruction companies.

The government also simplified rules for investment by non-resident Indians (NRIs) in shares and debt of companies listed on local exchanges.

Photo  : AFP