Money & Banking

Rupee crashes as equities plummet

Our Bureau Mumbai | Updated on March 12, 2018


Down Rs 1.23 vs $; RBI doesn't intervene

The rupee went into a free fall on Thursday, declining 2.5 per cent (or Rs 1.23) against the US dollar. This is one of the sharpest single day drops in recent times.

Though the rupee depreciated steeply, there was no indication of the Reserve Bank of India intervening in the forex market to stem the fall.

Factors such risk aversion setting in among investors and uncertainties in the Euro zone arising from the Greek debt crisis and the sovereign rating downgrade of Italy have led to the strengthening of the dollar against other currencies. This is putting pressure on the rupee, even though nothing has changed intrinsically for the domestic currency, said dealers.

The 700 points drop in the domestic equities market added to the rupee's woes. In the absence of intervention by the RBI, the rupee touched 49.56, a level last seen in June 2009.

The rupee opened almost 50 paise lower at 48.82 and soon touched 48.85/90 as the Sensex fell by more than 450 points. It ended the day at 49.56, which was also the day's low. The previous close for the rupee was 48.33.

Market participants believe that the rupee is not likely to see significant reversal before three months given the cues emanating from global markets, and may touch levels of 50 on Friday.

RBI intervention

It was widely expected that the RBI would intervene and sell dollars in order to stem further weakening of the rupee. Incidentally, Finance Minister Mr Pranab Mukherjee, while speaking in New York had said that the RBI would intervene if necessary and sell dollars.

“If the RBI had intervened and sold dollars it would have gone to the FIIs. So, perhaps the RBI thought it better not to intervene,” said a forex said.

However, a few public sector banks sold dollars once the rupee crossed the 49 level.

“The latest move by the US Fed to buy long-term securities is comforting the market with regard to shortage of the dollar. So, in relation to the dollar, other currencies are depreciating. There is no other domestic reason for the rupee to weaken,” said the head of treasury of a public sector bank.

Published on September 22, 2011

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