Mumbai, Aug. 19: The rupee tumbled to its lowest level at 63.30 to the dollar, recording its biggest single-day fall in a decade of 164 paise on a day the Reserve Bank chose not to try and prop up the floundering currency.
It clawed back some of the losses to close at 63.13 but the market continued to be edgy as importers’ demand for dollars remained strong, though actual trades were thin.
Stocks were also clobbered on a Manic Monday amid lingering fears over the US Federal Reserve’s anticipated tapering of its monetary stimulus programme, under which it has bought US bonds worth $80 billion every month, funnelling cheap money into the global financial system.
The drop in the rupee’s value hurt the stock market as well with investor wealth worth nearly Rs 94,000 crore going up in a puff of smoke. The bellwether sensex fell 290.66 points to close at 18307.52.
Last week, the central bank had announced a series of measures to curb dollar remittances by individuals and companies but the strategy is clearly not working.
Experts say the US dollar has gained against some of the other emerging-market currencies like the Indonesian rupiah and the Malaysian ringgit on fears that the Fed will taper its bond purchases next month.
Importers have been bidding for more dollars as they fear that the Fed announcement will trigger sharp outflows and it would, therefore, make sense to take dollar positions now.
“Importers in India are also bidding for more dollars. But the fall in the rupee is sharper because the forex market isn’t awash with supplies of the greenback. Both the equity and forex markets are caught in a vicious cycle; they are feeding off each other’s weakness and plumbing new lows,” said a bank official.
The rupee has lost 13 per cent against the dollar since January, making it the worst performing currency in Asia.
Foreign institutional investors (FIIs) have been pulling out of the bond market, taking out over $4 billion since the end of May. However, the FIIs haven’t been dumping stocks as yet, though they have not been pouring money into the market either.
Foreign investors have put over $12.6 billion in shares this year. Provisional data from the stock exchanges today showed that they had sold equity worth Rs 680 crore.
“The measures taken by the central bank in recent weeks have failed to revive the sentiment. Problems on the domestic front and global uncertainties are putting severe pressure on the rupee,” said Abhishek Goenka, founder & CEO of India Forex Advisors.
The sensex opened at 18587.38, hit an intra-day low of 18139.15 and closed at 18307.52, a drop of 1.56 per cent.
“Markets fell sharply for the second consecutive day. The weakness in the rupee marred sentiment…. A depreciating rupee will raise costs for companies and crimp profit margins,” warned Dipen Shah, head of private client group research at Kotak Securities.