Source: The Hindu Businessline

August 28, 2013

The rupee hit a historic low of 68.75 against the dollar at 10.30 a.m. local time on heavy month-end demand for dollar from banks and oil importers amid a sharp fall in the domestic equity market. Breaching the 67-level, the rupee tumbled by 82 paise to yet another life-time low of 67.06 per dollar in the opening session against the previous close of 66.24.

Fiscal deficit woes

Parliament approval for Rs 1.35-lakh-crore Food Security Bill spooked the markets on Tuesday as there were fears that the fiscal deficit would worsen. “This is a nervous reaction as investors feared that the Bill’s implementation could swell the fiscal deficit. The extent of depreciation is uncertain at this point. However, this sharp panic fall is not sustainable for a long time,” said Rupa Rege Nitsure, Chief Economist, Bank of Baroda.

Emerging market currencies

The Indian rupee is among the worst performing currencies among emerging market currencies this year falling about 17 per cent. Persistent month-end dollar demand from importers and sustained foreign capital outflows from the equity market pulled down the rupee value, a dealer with a public sector bank said. The RBI intervention is not helping the rupee at this point. A massive intervention is needed to limit further depreciation, though this could be at the cost of heavy outflow of forex reserves in the short-term, the dealer added.

Call rates, G-Secs

The 10-year benchmark 7.16 per cent government security (G-Sec), which matures in 2023, opened lower at Rs 88.40 from the previous close of Rs 89.50. Yields on the security jumped to 8.96 per cent from the previous close of 8.78 per cent. Last week, the yields had recovered from its five-year high of 9.5 per cent after the RBI provided relief to the banks by reversing some measures to limit the losses on their G-Sec investments. The inter-bank call money rate, the rate at which banks borrow from each other for short-term funding, opened higher at 10.40 per cent from the previous close of 10.15 per cent. (Source: The Hindu Businessline)