Déjà vu UPA days? Rupee crosses 20-month low of 64 vs dollar; further fall seen

By Rajesh Pandathil & Kishor Kadam

The rupee has returned to the levels pre-Narendra Modi days. The currency yesterday fell to 64 against the dollar, its lowest in 20 months. Reuters attributed the fall in the Indian unit to FIIs’ concerns over the government’s taxation policies that threaten to reduce the allure of local assets for these set of investors.

What also hurt the currency is a global debt sell-off also hurt.

However, it was the fifth straight day of depreciation for the rupee against the dollar. The equity benchmark index Sensex, which nosedived 723 points on Wednesday, continued its slide yesterday, signalling unabated pull-out of FIIs from the Indian assets.

Significantly, the last time the rupee hit the 64 level intra-day was 13 September 2013, the day the BJP declared Narendra Modi as its prime minister candidate. The markets have been on a hope rally ever since, with the sustained dollar inflows through FIIs pushing the BSE Sensex to a record high of 30024.74 on 4 March 2015. On 22 May 2014, the day election results were announced and Modi won, the rupee hit a high of 58.46.

Reuters report citing traders said the uptick in non-deliverable forwards traded in Singapore was also hitting sentiment for the local unit and prompting custodian banks to sell the rupee.

The one-month NDF was at 64.35/35 versus Wednesday`s close of 64.02. The partially convertible rupee was trading at 63.91/92 per dollar by 11:32 am, after hitting 63.93, its lowest since September 13, 2013, the report said. Later the currency further fell to 64.21. The pair had closed at 63.54/55 on Wednesday.

Besides, increased demand for dollar from importers and banks weighed on the local currency, forex dealers said.

The rupee had dipped by 10 paise to close at one-week low of 63.54 against the US dollar in yesterday’s trade.

Most emerging Asian currencies lost ground on Thursday as a global bond rout lifted government bond yields across the region.

Traders are now waiting to see if the Reserve Bank of India steps in to prevent a further sharp fall in the currency. According to CNBC-TV18, the central bank is suspected to have sold dollars around 64 levels.

However, analysts do not expect too much of intervention from the central bank.

“I do not expect the rupee to substantially depreciate similar to what was seen back in 2013 because the Reserve Bank of India (RBI) now has a lot more in its war chest in terms of the Fx reserves in order to prevent such large move but nonetheless I do not expect the RBI to stand in the way of a weaker currency particularly when it is driven also by a strong US dollar,” Khoon Goh, Senior Forex Strategist, ANZ Research told CNBC-TV18 in a report .

He expects the rupee to hit 65 against the dollar by the end of the year.

But there are others who expect the currency to fall further. A technical analysis by Citi recently said the rupee may be headed towards 69 levels in the next six months.

While it may not be completely right to say that the markets are going back to the levels of the UPA days, it definitely is a déjà vu for the investors as much promised reforms have not yet started rolling out.

With inputs from agencies