The Rupee hit yet another record low on Wednesday as worse-than-expected inflation data and the U.S. Feds decision to hold back on new stimulus steps heightened fears that capital outflows from emerging economies such as India could accelerate. The rupee closed at 53.71/72 to the dollar after briefly hitting an all-time low of 54, which represented a drop of 3.7 percent from its close last Friday. "We have to prepare ourselves for possibly new lows on the rupee every day," said Naveen Raghuvanshi, associate vice-president of currency trading at the Development Credit Bank. "You name a negative and it is there for the rupee," he said. "We could see 56 by end of this month."
While some traders said the Reserve Bank of India may step into the market, any intervention would likely have little long term impact given Indias relatively limited foreign exchange reserves and the host of negative factors lining up against the currency. Indias wholesale prices rose 9.11 percent in November, leaving inflation stubbornly high and suggesting the central bank would hold rates steady at its review on Friday even as worries grow over the health of the economy.
C. Rangarajan, chairman of the Prime Ministers Economic Advisory Council, said India could do little to check the fall in the rupee, which is also being buffeted by external factors.
The euro slipped versus the dollar on Wednesday after Italy paid a euro-era record yield of 6.47 percent to sell five-year debt, adding to concerns that an EU summit last week had made little progress in tackling the regions debt crisis.Sailesh K. Jha, head of Asia strategy at Skandinaviska Enskilda Banken, said the rupee was vulnerable because of large external debt payments of about $20 billion due in the first half of 2012 and because importers were not effectively hedged.
"We anticipate continued net outflows from the equity market into first half of 2012 as the uncertainty on the outlook for India growth, inflation and macroeconomic policies lingers," Singapore- based Jha said. The rupee, Asias worst performing currency this year, could slip to 55 to the dollar by the end of December and head to 57 in the first quarter of 2012, he said. However, the currency will probably rise modestly by the end of next year, a Reuters poll showed. At Wednesdays close the rupee is down about 18.3 percent from its 2011 high in July . One-month offshore non-deliverable forward contracts were quoted at 54.17, indicating a short-term negative outlook for the onshore spot rate.
The one-month onshore forward dollar premium was at 34.25 points, up from 33 on Tuesday. In the currency futures market, the most-traded near-month dollar-rupee contracts on the National Stock Exchange, the MCX- SX, and the United Stock Exchange were about 53.92 above the spot rate. The main stock index closed down 0.76 percent after a choppy session as the higher-than-expected inflation figure dampened hopes of any immediate monetary policy easing. While the central bank is widely expected to keep rates on hold at its review on Friday, economists expect it to accelerate monetary easing in 2012 as economic conditions worsen in Asias third-largest economy
BECAUSE OF FALLING SUPPLY & RISINGDEMAND FOR DOLLAR……High current account deficit ($b)2008-09 27.92009-10 38.42010-11 44.32011-12 60
NEED FOR STEADY CAPITAL FLOWS TO MEETDEFICTFII INFLOW ($ b)2008-09 -9.952009-10 30.362010-11 32.22011-11 4.9
INTERVENTION BY CENTRAL BANK $306.8 billion reserves mostly borrowed funds. At 43.5% of forex reserves,external obligations are at a ten-year high.
% CHANGE IN CURRENCY VALUE AGAINST $SINCE AUGUST Series 3 Series 3 India -21 Brazil -18Japan -1Russia -15
THE ECONOMIC IMPACT IS EVIDENT IN: 11% decline in Indian crude basket in dollar terms negated by the rupee drop. Rupee cost of $352.2 billion of yearly imports will rise. Goverment’s subsidy bill will rise about 1lakh crore. Interest costs will rise for companies that have borrwed overseas. 8000 cr hit for oil marketing for ever 1 depreciation against the dollar.