Indian rupee turns senior citizen; PSUs add to woes

Moneycontrol Bureau

The Indian rupee on Wednesday closed at an all time low 60.71 against the US dollar after slumping to a record intra-day low 60.76/USD. Dollar buying by two large public sector units (PSUs) including Rural Electrification Corporation (REC) and GAIL created additional pressure on the local currency to touch historic lows against the greenback, traders said.  

"In the late afternoon trade, both REC and GAIL bid for around USD 100 million, which added to the existing dollar demand," a senior currency official from a bank told moneycontrol.com.  

"I think, they were to meet some internal requirements. That (move) created an outward flow and was completely unwarranted for the domestic currency market, which is going through rough weather," the person said on conditions of anonymity.

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Meanwhile, foreign institutional investors continued to exit their investments both from equities and bonds.

Indian equities lost ground with the 50-share Nifty on Wednesday closing below the 5600 level on the NSE. Nifty fell 27.85 points to end at 5581.25. The BSE Sensex index was down 77 points to close at 18,552.

"Overseas investors continued to exit Indian securities. Nobody was expecting the rupee to breach 60.50/USD level. However, it surpassed the level triggering many stop losses. Ahead of the future and option expiry on Thursday, rupee is expected to open at 61/USD tomorrow," said Naveen Raghuvanshi, associate vice president at Development Credit Bank (DCB).

In an F&O expiry, overseas investors, who might have gone long (or bought), will sell equitites resulting in dollar outflows.

It is learnt that short positions were built at around 59.90/USD and traders incurred losses as rupee slipped to 60.71 level.

The Reserve Bank of India (RBI) intervened to check rupee's further slide at 59.90/USD. The central bank was actually trying to resist it from becoming a senior citizen. However, large scale intervention was conspicuous by its absence, traders said.

The finance minister P Chidambaram on Tuesday said that there was no need to react and panic over the rupee's fall.

"We are not insulated from what is happening in the rest of the world. My request is, we should not react and panic. It is happening around the world," he was quoted saying.

Saikat Das

saikat.das@network18online.com