Rupee plummets on rising oil prices

MUMBAI: The rupee hit new lows against the dollar on Friday as corporates stepped up dollar purchases amid concerns over firm world oil prices and weak regional currencies.

Dealers said demand was sparked by the absence of central bank intervention who added that volumes were low. The rupee, which has fallen 7 per cent against the dollar so far this year, closed Friday at 46.74/75 versus the US unit after touching a lifetime intra-day low of 46.79.

Traders, however, expect some respite for the rupee next week.

"Corporates are covering their requirements in a thin market, but I think the rupee should stabilise in a broad 46.75/90 level," Surendra Rosha, head of treasury sales at HSBC, said. "I expect better dollar supplies next week as these are extremely attractive rates for exporters to sell," he said.

However, longer term concerns have not yet been cleared and the undertone on the currency would remain bearish, dealers said.

"I have revised my calendar year end target to 47.0 from 47.10," a dealer in a foreign bank said.

The rupee has been under pressure since May this year as foreign capital inflows slowed while global crude oil prices remained firm.

Foreign funds has so far invested a net of $282.5 million in the current financial year, compared with $2.34 billion in 1999/00 (April-March).

While inflows from foreign funds have slowed to a trickle, outflows on account of oil have risen.

India imports a large part of its crude oil requirements and its import bill for 2000/01 (April-March) is expected to jump to $1.5 billion from $12.3 billion a year earlier if global prices remain at current levels.

A weak euro and sterling were also adding to pressure on the rupee, traders said.

The rupee has fallen nearly one per cent this week, with no signs of intervention from the central Reserve Bank of India (RBI).

The RBI has said that the rupee's value is market-determined and that the central bank has no target for its value.

Traders said the central bank's past actions indicated hat it would intervene only if there was excessive volatility or indications that trade was speculative.

"With the central bank allowing the rupee to find its on levels, my guess is the rupee should weaken further gradually" a dealer in a foreign bank said

He said the rupee was still overvalued by nearly two percentage points on trade-weighted terms due to a recent jump in the domestic inflation rate and the weakness of the euro and sterling.

The rupee might get a mild boost in the short term on inflows from a ongoing overseas deposit scheme launched by the State Bank of India (SBI), dealers said.

The State Bank of India's Millennium Deposit scheme, which was launched on Saturday, has so far collected $1 billion, a senior bank official said.

Inflows through the scheme will boost India's foreign exchange reserves which are down nearly eight per cent from their mid-April peak of $38.34 billion. (Reuters)

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-- Martin Thompson (mthom1927@aol.com), October 28, 2000