Rupee hits new low of 65.56, recovers later

Mumbai/New Delhi, Aug 22, 2013, DHNS:

Rupee is the worst performing currency

The rupee on Thursday breached the 65-level against the dollar hitting new lows for the fifth straight session, after the US Federal Reserve hinted that it would start scaling back its stimulus as early as next month.

However, the domestic currency, after dropping below the 65-mark recovered to close down 44 paise over its previous close at 64.55 to the dollar — a fresh closing level. The latest spurt of depreciation came on the back of persistent dollar selling by exporters and foreign institutional investors (FIIs) despite Finance Minister P Chidambaram and RBI Governor D Subbarao trying to mollify investors, saying there is no need for “unwarranted pessimism”.

The rupee opened weak at 64.75 against the dollar and declined to a lifetime low of 65.56/$ as heavy demand from importers along with weak domestic equities continued to weigh in on market sentiment.

The rupee has now seen new closing lows in the last five straight trading  sessions.  Forex traders felt that despite demand from private and foreign banks, the rupee depreciated more because of the psychological effect of the US Fed's decision. A temporary pullback happened after RBI intervened but the rupee soon shot past the 65/dollar mark. 

The slide continued as government is yet to come up with any concrete measures to encourage inflows. Apart from the high current account deficit, the impact of rupee depreciation is that it fuels inflation and increases the import bill to mention a few.  It also increases the government's spending on fuel subsidies, potentially widening the fiscal deficit. 

Finance Minister P Chidambaram sought to lift investor confidence at a news conference on Thursday in New Delhi saying that while economic growth remained flat in the first quarter of 2013-14, it is likely to pick up in the remaining three quarters.

However, analysts said that the rupee is the worst performing currency in Asia right now.

According to India Forex Advisors' Founder & CEO Abhishek Goenka, “With a fall of 19 per cent this year so far, the rupee is the worst performing Asian currency. A set of RBI and government measures have not helped rupee to witness a recovery.”