Rupee hits all-time low of 52.73 vs dollar; looks vulnerable
The rupee skidded to an all-time low on Tuesday as oil refiners and other companies scrambled to buy dollars, with the currency looking increasingly vulnerable to a swelling current account deficit.
Exposure to short-term portfolio flows, a rising oil import bill and slowing export growth have heightened the risk on the rupee and the outlook remains bearish.
There is also the increasing likelihood the US super committee will fail to reach a deal on debt restructuring, which could trigger another major round of selling of in emerging market and risky assets.
At 10:40 a.m. (0510 GMT), the rupee was at 52.58/59 per dollar, after touching an all-time low of 52.73, and 0.8 percent weaker than its previous close of 52.1550/1650.
At its record low, the rupee has slumped 16.8 percent from its 2011 high reached in late July.
"The outlook for the rupee continues to look weak at this point. The next technical level on the chart shows 55.11," said Ashtosh Raina, head of foreign exchange trading at HDFC Bank in Mumbai.
"There is all-round demand coming in from all quarters and there are unlikely to be any ranges for the market now."
Describing the sharp depreciation of the rupee as "disruptive", the Reserve Bank said any action to arrest the fall will be guided by medium-term considerations.
"We don't really have a target or a rate in mind. It's moving as per market dynamics. It (fall in the value of the rupee) is disruptive, there is no question. There (will be) impact on our import bill, particularly for energy. It's having an impact on companies and it is a problem," Reserve Bank Deputy Governor Subir Gokarn told reporters here.
On the possibility of action by the central bank to arrest the fall of the rupee, Gokarn said, "Any action we take now (will) have to take into account the fact that these actions might have consequences a little further down the road. So we have got to balance out actions with risks or a potential increase in vulnerability later on..."
"Actions have to be weighed in terms of their medium-term risks," he added.
The immediate impact of the fall in the value of rupee, he said, will be on the inflation rate, which has been hovering near the double-digit mark for several months.
"We should not be looking at only the short-term when we make these judgements. Every action that has been suggested... that has been debated, also has potentially adverse consequences down the road. So we have got to balance out those too."
Although the RBI has been maintaining that the exchange rate should be market-determined, it is volatility that has been worrying the central bank.
"... Volatility is another thing. This is the sharpness and speed of the movement that is obviously creating some disruptions. We don't know where it is going to go, but it is something we need to watch out for," Gokarn said.
The rupee skidded to an all-time low on Tuesday as oil refiners and other companies scrambled to buy dollars, with the currency looking increasingly vulnerable to a swelling current account deficit.
Exposure to short-term portfolio flows, a rising oil import bill and slowing export growth have heightened the risk on the rupee and the outlook remains bearish.
There is also the increasing likelihood the US super committee will fail to reach a deal on debt restructuring, which could trigger another major round of selling of in emerging market and risky assets.
At 10:40 a.m. (0510 GMT), the rupee was at 52.58/59 per dollar, after touching an all-time low of 52.73, and 0.8 percent weaker than its previous close of 52.1550/1650.
At its record low, the rupee has slumped 16.8 percent from its 2011 high reached in late July.
"The outlook for the rupee continues to look weak at this point. The next technical level on the chart shows 55.11," said Ashtosh Raina, head of foreign exchange trading at HDFC Bank in Mumbai.
"There is all-round demand coming in from all quarters and there are unlikely to be any ranges for the market now."
Describing the sharp depreciation of the rupee as "disruptive", the Reserve Bank said any action to arrest the fall will be guided by medium-term considerations.
"We don't really have a target or a rate in mind. It's moving as per market dynamics. It (fall in the value of the rupee) is disruptive, there is no question. There (will be) impact on our import bill, particularly for energy. It's having an impact on companies and it is a problem," Reserve Bank Deputy Governor Subir Gokarn told reporters here.
On the possibility of action by the central bank to arrest the fall of the rupee, Gokarn said, "Any action we take now (will) have to take into account the fact that these actions might have consequences a little further down the road. So we have got to balance out actions with risks or a potential increase in vulnerability later on..."
"Actions have to be weighed in terms of their medium-term risks," he added.
The immediate impact of the fall in the value of rupee, he said, will be on the inflation rate, which has been hovering near the double-digit mark for several months.
"We should not be looking at only the short-term when we make these judgements. Every action that has been suggested... that has been debated, also has potentially adverse consequences down the road. So we have got to balance out those too."
Although the RBI has been maintaining that the exchange rate should be market-determined, it is volatility that has been worrying the central bank.
"... Volatility is another thing. This is the sharpness and speed of the movement that is obviously creating some disruptions. We don't know where it is going to go, but it is something we need to watch out for," Gokarn said.
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