Rupee hits record closing low as banks, importers buy dollar

Reuters: The rupee touched a record closing low yesterday on strong dollar demand from foreign banks and importers while exporters stayed on the sidelines, expecting the rupee to weaken further in line with other emerging market currencies.

The spot rupee ended at 158.50/60 per dollar, its lowest close, compared with Wednesday’s close of 158.20/30. The rupee hit an all-time low of 158.50 per dollar on 16 May. The currency has declined 0.35% so far this month after a 1.5% fall in April. It has fallen 3.1% so far this year.

“Demand was there today from importers and some foreign banks,” a currency dealer said. Dealers said the rupee will be under pressure with exporters staying on the sidelines in anticipation of a fall in the unit, in line with other emerging market currencies. A possible slump in the country’s top agriculture export, tea, due to heavy monsoon rains also weighed on sentiment.

Dealers expect lower dollar inflows from tea exports to weigh on the currency, apart from debt repayments by the Government, and to see the rupee declining between 4% and 5% this year. The pressure on the currency is unwarranted as gross external reserves are at $9.1 billion, and the real effective exchange rate indexes indicate that the currency is competitive, the Central Bank had said.

Foreign investors sold Government securities worth a net Rs. 457 million ($2.89 million) in the week ended 23 May, bringing the outflow so far this year to Rs. 16.2 billion, Central Bank data showed.