By Jeanette Rodrigues - 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 headed for the biggest weekly drop in almost six months 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 1.7 percent this week, the biggest advance since December, as Moody’s Investors Service downgraded 16 Spanish banks and 26 Italian lenders. Funds based abroad cut holdings of Indian shares by $114 million over May 15 and May 16, exchange data show.
“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 2 percent this week to 54.7500 per dollar as of 9:28 a.m. in Mumbai, the biggest drop since the five days to Nov. 18, according to data compiled by Bloomberg. It slid 0.5 percent today and touched an all-time low of 54.7650 earlier. The currency has slumped 7.1 percent this quarter in Asia’s worst performance.
The rupee’s one-month implied volatility, a measure of exchange-rate swings used to price options, rose 92 basis points, or 0.92 percentage point, to this year’s high of 13.27 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 56.36 a dollar, compared with 56.21 yesterday, and offshore non- deliverable contracts were at 56.71 from 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
®2012 BLOOMBERG L.P. ALL RIGHTS RESERVED.
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