Saikat Das
moneycontrol.com
A day after the finance minister tried to downplay concerns over exchange rate depreciation, the Indian rupee's steep fall against the US dollar remained unabated. It closed on Friday at 57.07 per US dollar, down 0.39 percent or 22 paise from its previous close.
The local unit breached the 57-mark in the second consecutive day hitting an intraday low of 57.12/USD. Despite repeated regulatory measures, it is almost falling flat.
Fresh low against USDThe Indian currency touched a record low at 57.33/USD a year ago. It is likely to break the level next week in the absense of any strong fundamental resistence, experts said. It weakened more than 5.5 percent against the greenback since May this year.
Dollar demand"I don't see any fundamental reason for the rupee to appreciate against the US dollar in the foreseeable future," Partha Bhattacharya, deputy CEO, Mecklai Financial (a Mumbai-based forex firm) told
moneycontrol.com.
"Dollar demand, be it from gold imports or oil companies will not ebb irrespective of any regulation. Due to curbs, things may shift from regulated markets to unregulated ones. RBI's ability to intervene may not be effective in the current scenario. Moreover, dollar inflows are absolutely missing," he said.
Finance minister P Chidambaram on Thursday said that there was no cause for alarm and the currency would soon find its stable level.
Also read: Chidambaram urges banks to cut rate, discourage gold buying Govt efforts to get FII investmentThe government, according to media reports, is likely to raise the cap on foreign institutional investment (FII) in government securities by USD 500 crore soon to support the sliding rupee, and bridge a widening current account deficit, which stood at record high at 6.7 percent of GDP in October-December quarter.
However, global investor appetite on Indian papers remains lacklustre as of now. Our country still faces the threat of rating downgrade to junk category. Hence, chances of higher dollar inflows through extended limits are less, observe market participants. Higher dollar inflows result in demand for rupee buying.
Overseas investors selling bonds According to currency traders, overseas investors who perhaps had invested in Indian government bonds in 2008-09 are now selling their investments to book profits. This is happening on the back of bond rising prices and falling yields. This has added to additional dollar demand, which in turn, is putting more pressure on the rupee, traders said.
Currently, the 10-year benchmark bond yield is trading in the range of 7.20-7.30 percent. This is way below the 7.80-7.90 range recorded almost a quarter back. The yield on the 10-year benchmark government bonds has dropped sharply due to easing rate of inflation.
The Wholesale Price Index (WPI) inflation dropped to 4.89 percent in April against 5.96 percent in the previous month.
Importers' woes & RBI intervention"The current exchange rate movement is mostly driven by domestic issues," said Viral Shah, vice president, Geojit Comtrade.
"Exporters are not selling (dollars) expecting the market to move up further. US non-farm payroll data will also act as a key to trigger for the local currency market to open on Monday. It can breach the yearly low level at 57.33 next week. RBI is not seen intervening the exchange rate in large scale. It is only 10-15 paise occasional intervention. Under the current situation, the central bank should do it in a big way," he said.
As the rupee depreciates, importers who need dollars to pay their overseas clients are forced buy the currency from the local currency market paying extra rupees. This squeezes their profit margins.
The Reserve Bank of India governor D Subbarao earlier in the day said that it was somewhat misleading to believe that it could get export competitiveness from India's exchange rate. "We need to get the same by increasing our productivity and competition in other ways but not by exchange rate," he said speaking in Hyderabad.
Must read: Weak rupee won't help exports, competitiveness will: RBIThis was indicative of frequent interventions in the currency market to stem the rupee’s sharp fall against the USD. However, RBI refuses to give any particular level for the exchange rate. Generally, the central bank asks state-owned banks to buy/sell dollar to check volatility in the currency market.
FM: wait & watchP Chidambaram on Friday said that the government has decided to wait and watch if the demand for gold tempers as a result of the hike in duty. It is not considering measures such as NRI bonds or sovereign debt.
saikat.das@network18online.com 
