Forex dealers told dna that exporters were also selling dollars towards the close of market hours. "The month-end demand for dollars from oil refiners and importers kept the pressure on the rupee."
An intervention in the money market by the Reserve Bank of India (RBI) at the fag end of market hours pulled the rupee back from a fresh two-year low of Rs 66.86 to the dollar to close at Rs 66.67, a gain of 9 paise at close of trade on Monday.
Forex dealers told dna that exporters were also selling dollars towards the close of market hours. "The month-end demand for dollars from oil refiners and importers kept the pressure on the rupee."
The rupee has been the worst faring currency in Asia in November losing close to 2.4%. Improving job data and wages in the US is making the rate hike by Federal Reserve imminent this month, forcing foreign portfolio investors to flee Indian markets. In November, FPIs sold $1 billion in equities and $488 million in the debt segment.
The sell-off in the equity and the debt markets is expected to continue as the dollar strengthens with the US Fed tightening rates. With the European Central Bank planning a lower interest rate regime (easy monetary policy) the dollar may further strengthen.
On an annual basis, rupee has fared better than its peers, losing only 7.5% up to October 15 from a year earlier, while the other developing markets peers like the Malaysian ringgit lost 31%, the South African rand lost 29%, Brazilian real fell 47%, Russian rouble 38%. The Korean won has fared better losing only 6.5% during this period.
Mohan Shenoy, head of treasury, Kotak Mahindra Bank, said, "The divergence in the US Fed monetary policy is expected to strengthen the dollar against major currencies in the world, including India. The rupee may further depreciate as the dollar strengthens. Foreign investors are likely to withdraw from most emerging markets."
Deutsche Bank said in a report the risk stemming from further US dollar rally around Fed policy normalisation, rising dollar funding costs, tightening liquidity, and possible depreciation of the renminbi are not adequately priced in the present value of the Indian rupee. "Shift of the rupee to a 68-70 range to the US dollar is therefore plausible if some of these risks materialise. In the absence of these risks, the rupee will be range-bound around 66-68," said the report.
Bansi Madhavani, analyst with ratings firm India Ratings, believes that the rupee faces near-term pressure. "We believe a reversal is underway sooner rather than later. Healthy recovery in economic growth expected in the range of 7.6% for the second half of 2015-16 along with RBI's not-so-dovish stance might lead to rupee outperforming its peers. Positive developments from the parliament's winter session (consensus building on goods & services tax) may pave the way for gains for currency," said Madhavani.
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