Rupee at record low as State bank lowers dollar selling rate

Reuters: The spot rupee fell to its lowest ever level on Thursday after a State bank, through which the Central Bank usually directs the market, lowered its dollar selling rate by 20 cents to Rs. 134.20 per dollar, dealers said.

The currency fell 0.15%, after staying steady for three straight sessions, and hit 134.20, its lowest level ever, compared with Wednesday’s close of 134, which was the previous all-time low.

The move comes a day after currency dealers told Reuters that it would not be sustainable to defend the rupee with State bank dollar sales in the long run as this could bring down foreign exchanges reserves to a “dangerous level”. 

“There is heavy demand for dollars from importers and some foreign banks which are facilitating exit of foreign investors in Government securities,” a currency dealer said on condition of anonymity.

Currency dealers see persistent downward pressure on the rupee due to a strengthening US currency amid exits by foreign investors from Government securities due to speculation over a rate hike by the Federal Reserve sooner rather than later.

Central Bank Governor Arjuna Mahendran said last week that the country should let market forces determine its rupee exchange rate and warned that trying to buck the global trend of a rising dollar was “suicidal”. 

The rupee, which has fallen 2.27% so far this year, is on the decline mainly due to a stronger dollar, the Central Bank has said, while higher imports and private sector credit in a lower interest rate regime also weighed on the currency.

One-week forwards ended weaker at 134.35/55 per dollar compared with Wednesday’s close of 134.15/35, while three-month forwards ended at 136.10/20 per dollar compared with Wednesday’s close 135.90/136.10.

On Wednesday, Sri Lanka called on banks and investment houses to propose terms for a foreign currency term financing facility as it seeks to raise up to $500 million to meet the costs of some externally-funded projects stated in its 2015 budget after the Government raised nearly $1 billion via a 10-year sovereign and development bonds on 28 May. 

The Central Bank on Thursday called bids to sell $100 million in development bonds.