Rupee slides to 18-month low against dollar

August 26th, 2008 - 10:09 pm ICT by IANS  

New Delhi, Aug 26 (IANS) The Indian rupee hit an 18-month low Tuesday shedding 49 paise to a dollar to breach the Rs.44-mark for the first time since March last year.The Indian central bank, Reserve Bank of India’s rupee-dollar reference rate was Rs.44.07 Tuesday. The reference rate is based on 12 noon rates of a few select banks in Mumbai.

The Indian currency fell for the second day in a row after shedding 20 paise Monday, ending two days of gains on the back of steady selling by foreign institutional investors (FIIs) in equity markets and a strong dollar overseas.

“The dollar will keep strengthening till crude oil prices come down to at least $100-$105 per barrel,” chartered financial analyst and portfolio strategist Mohan Krishnan told IANS Tuesday.

“Once the $6 billion or so FII (foreign institutional investors) funds that have gone out of the system this year begins to return, the rupee will be able to neutralise the strengthening of the dollar overseas,” said Krishnan, who heads the Delhi-based Price Investment Management and Research Service.

FIIs have been net sellers throughout 2008 and their net redemption this year accounts for about 11 percent of the cumulative investments by them since they first started investing in India in 1993.

Even Tuesday, the net sales of FIIs on the equity markets were Rs.5.72 billion (Rs.572.04 crore or Rs.5.74 billion).

Sell-off in equities and month-end dollar demand from oil companies aided the fall of the rupee.

The Indian currency touched an all time low of Rs.49.05 to the dollar May 16, 2002. The rupee lost 12.3 percent in 2007.

This year, it has depreciated 11.8 percent till date.

The rupee had hit a high of Rs.39.27 Nov 7, 2007. Since then, it has fallen steadily despite a few fluctuations in between.

Since July this year, however, the rupee has been falling rather sharply due to the strengthening of the dollar against all major currencies such as the euro, pound sterling and the Japanese yen.

“Large global investors have been deploying their funds either on crude oil or on the dollar,” Krishnan said.

Consequently, when crude oil prices went up the dollar weakened and now with crude oil prices weakening since peaking at about $147 per barrel mid-June, the dollar is strengthening.

“The Indian currency should hit around Rs.45 to the dollar before climbing again,” Krishnan said.

It also depends on whether the RBI will sell dollars in the market and to what extent.

A weakening rupee is good for net exporters such as IT firms, but importers, particularly the oil firms, are likely to be badly hit, especially because they cannot take advantage of the recent fall in the price of crude.

India imports 70 percent of its oil needs. Since all oil purchases are in dollars, importers now have to pay more rupees for the same amount of dollar.

A higher import price will also push up inflation, which is now at a 16-year high of 12.44 percent.

The central bank is, therefore, likely to intervene once the rupee touches the 45-mark, to keep down the oil bill and keep inflation in check, analysts said.

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