Bloomberg News

Rupee Tumbles to Record Low on Europe Debt Concern: Mumbai Mover

May 18, 2012

India’s rupee fell to a record low as investors sought the perceived safety of the dollar over emerging-market assets on concern Europe’s debt crisis is worsening.

The local currency completed a seventh weekly drop, the longest losing streak since October 2008, after Greece’s credit rating was cut by Fitch Ratings yesterday amid concern the country will leave the euro. The Dollar Index, which tracks the currency against those of six major trading partners, rose 1.4 percent this week. The rupee pared losses today after central bank Deputy Governor Subir Gokarn said policy makers are considering measures to support the exchange rate.

“Strong market forces in favor of the dollar have created panic,” said J. Moses Harding, executive vice president at IndusInd Bank Ltd. (IIB) in Mumbai. “The Reserve Bank of India does not have enough ammunition to fight against the tsunami-like ferocious headwinds the rupee is facing.”

The rupee declined 1.5 percent this week to 54.4250 per dollar in Mumbai, according to data compiled by Bloomberg. It touched an all-time low of 54.91 today and has slumped 6.5 percent this quarter in Asia’s worst performance. The currency advanced 0.1 percent today after falling as much as 0.8 percent earlier.

The rupee’s one-month implied volatility, a measure of exchange-rate swings used to price options, rose 65 basis points, or 0.65 percentage point, to this year’s high of 13 percent.

RBI May Act

The Reserve Bank is closely monitoring the rupee’s movement and will act if needed, Deputy Governor H.R. Khan told reporters at Pokhara in Nepal on May 16, without elaborating. The monetary authority is considering selling dollars directly to oil importers to ease demand for the greenback, a central bank official said, asking not to be identified, citing policy.

The RBI may offer dollars to oil companies at its daily reference rate for the local currency, B. Mukherjee, director of finance at Hindustan Petroleum Corp., India’s third-largest state-run oil refiner, said yesterday.

The central bank cut last week the amount of overseas income companies can hold in foreign currency to 50 percent from 100 percent, forcing them to convert earnings. On May 4, policy makers raised interest rates on non-rupee deposits by as much as 300 basis points and freed up borrowing costs on foreign- exchange loans to exporters.

‘Out of Bound’

“The pace and trajectory of the depreciation has resulted in the perception of a currency out of bound and beyond control,” Arvind Chari, senior fund manager in Mumbai at Quantum Mutual, wrote in a research report yesterday. “This we believe is not the case and the RBI can turn around the situation by initiating a few more policy steps.”

Six-month onshore currency forwards traded at 56.19 a dollar, compared with 56.21 yesterday, and offshore non- deliverable contracts were unchanged 56.43. Forwards are agreements to buy or sell assets at a set price and date. Non- deliverable contracts are settled in dollars.

To contact the reporter on this story: Jeanette Rodrigues in Mumbai at jrodrigues26@bloomberg.net

To contact the editor responsible for this story: Sandy Hendry at shendry@bloomberg.net


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