Rupee reaches new low against dollar

The rupee hit a new low on a day when domestic stock markets rose and crude oil prices fell amid hopes of easing conflict in West Asia. Dealers attributed this to dollar demand linked to maturing non-deliverable forwards (NDFs) and month-end purchases.

On Wednesday, the rupee closed at a new low of 93.98 per dollar against the previous close of 93.87.

Market participants said the Reserve Bank of India (RBI) intervened in the forex market through sale of dollars, which prevented the rupee from falling beyond 94 per dollar.

“Risk sentiment has improved slightly due to news of talks between the US and Iran, although uncertainty remains. There was buying of the dollar by importers and traders at the end of the month,” a dealer at a state bank said. “Some positions maturing in NDFs put pressure on the rupee. RBI intervened at 93.98 per dollar. Strong resistance seen at 94.”

The outstanding net short dollar position in the rupee forward market increased to $67.77 billion at the end of January from $62.35 billion at the end of December.

Short positions with maturities of less than a year declined by about $3 billion, while long-term positions increased by about $9 billion.

After touching a new high of $728.5 billion in the week ended February 27, India’s foreign exchange reserves fell by nearly $20 billion over the next two weeks to $709.8 billion in the week ended March 13.

Taking into account the forward book, forex import cover is tracking at 9.2 months as of March, according to a note from IDFC First Bank. According to estimates, reserves will decline further to $696 billion by the end of March and the dollar deficit in the forward book will widen to $80 billion.

Anil Kumar Bhansali, head of treasury and executive director at Finrex Treasury Advisors LLP, said, “Markets were in risk-off mode, but the rupee was still selling against the dollar, bids remained higher at the end of the month despite a rally in equity markets and a weakness in the dollar index. Most risk assets rose against the dollar as the market expected some agreement between the warring parties – the US-Israeli bloc and Iran.”

The rupee is headed for its worst year in more than a decade, depreciating by 9.05 per cent against the dollar in the current financial year. So far in March alone it has weakened by 3.19 percent.