Rupee dives to two-month low on robust dollar demand

26 MAR, 2012, 06.09PM IST, REUTERS
MUMBAI: The rupee slid to its weakest level in more than two months on Monday on heavy dollar buying from oil importers and other companies, with a steep fall in local shares and a weak euro further dragging.

Traders said despite the pressure on the rupee, they believe the central bank did not intervene in the forex market as these demand pressures were seen as cyclical.

The rupee ended at 51.2650/2750 to the dollar, sharply weaker than its previous close of 51.17/18, after dipping as low as 51.4850 - a level last seen on Jan 16, Thomson Reuters data showed.

"There was dollar buying across the board in the market," said Naveen Raghuvanshi, associate vice-president of foreign currency trading at Development Credit Bank, as companies stepped up their dollar buying before the end of the month as well as the financial year.

India's main share index dropped nearly 2 per cent to its lowest close in nearly two months.

Questions over the continuation of foreign fund inflows into Indian shares resurfaced, on uncertainty over short-term capital gains taxes for derivative products sold to foreign investors, denting the market sentiment. The euro is seen as an indicator of risk appetite and hence is closely tracked by local currency traders for directional cues on the dollar. For stories see

Standard Chartered said in a note that it expected the current uptrend in USD/INR to extend into the second-quarter of this year as "twin-deficit risks re-emerge". Foreign capital inflows could be hurt due to the fiscal risks and the uncertain outlook for interest rate cuts, it said.

"Any exaggerated rupee weakness, leading to systemic risks, may lead to a more determined RBI response," the note said.

The Reserve Bank of India is suspected to have sold dollars on two occasions last week to shore up the currency and India imports about 80 per cent of the oil that it consumes and refiners are the biggest buyers of dollars in the currency market, with their demand tending to peak towards the close of each month when they make payments.

Tension between Iran and the United States is likely to keep the demand for dollars strong as Indian companies would look to clear import dues as early as possible before any financial sanctions are imposed on Iran's customers, traders said.

New Delhi, which buys nearly 12 per cent of its oil needs from Tehran, could be exempted from tighter US sanctions, the International Energy Agency's executive director told.

The one-month offshore non-deliverable forward contracts were at 51.85. In the currency futures market, the most-traded near-month dollar-rupee contracts on the National Stock Exchange, the MCX-SX and the United Stock Exchange all ended at around 51.3, on a total volume of $5.2 billion.