Breaching the 66-level, the rupee tumbled to yet another life-time low to close at 66.24 against the dollar on heavy month-end demand for dollar from banks and oil importers amid a sharp fall in the domestic equity market.

On Tuesday, the approval of Rs 1.35-lakh-crore Food Security Bill in the Lok Sabha spooked the markets as there was fear that 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.

The currency fell steeply by 194 paise from Monday’s close of 64.30 recording its highest intra-day fall against the greenback. This also makes the Indian rupee worst performing currency in this year falling about 17 per cent.

The rupee opened at 65 to the dollar and thereafter continued to slide 124 paise during the day.

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, ended lower at Rs 89.50 from Monday’s close of Rs 92.23. Yields on the security jumped to 8.78 per cent from the previous close of 8.34 per cent.

Last week, the yields had recovered from its five year high of 9.50 per cent after the RBI provided relief to the banks by reversing some measures to limit 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, closed a tad lower at 10.15 per cent from the previous close of 10.20 per cent.

Beena.parmar@thehindu.co.in

(This article was published on August 27, 2013)
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