The rupee shed 60 paise to 68.25 per dollar in the opening trade against the previous close of 67.65 due to heavy capital outflows and fears of a downgrade by rating agencies.
S&P, Fitch and Moody’s have aired their concerns in recent weeks, as the slowdown in growth threatens to derail the fiscal austerity plans.
On Monday, S&P put India’s chances of a downgrade higher than Indonesia. This has elicited concerns among market investors.
According to forex dealers, besides a rating downgrade, threat of the Syrian war put pressure on the rupee. “There were no inflows and concerns over sovereign rating downgrade amid Russia’s defence minister’s statement triggered heavy sell-off in the forex market,” said a dealer with a public sector bank.
The Reserve Bank of India’s special dollar window for oil retailers had last week helped ease the offshore non-deliverable forward (NDF) contracts thereby limiting the losses due to speculation in the currency market.
However, this did not help as lower GDP and manufacturing sector growth data subdued investor sentiments yet again.
The rupee had touched a historic low of 68.80 against the US dollar on August 28.
Radhika Rao, Economist, DBS said, “Signs of trouble have sprouted of late. Since late May 13, the currency has depreciated sharply, pulling down the equity and bond markets in unison. The liquidity measures to support the currency instead intensified growth risks and narrowed the scope for the monetary policy to assume a growth supportive stance. In the meantime, the stark rupee decline is feeding into inflation and raising the imported fuel costs.”
She added: “Risks of a move to sub-investment rating are likely to resurface in late 2013 or early 2014 as pre-election spending has ramped up further and political worries heighten.”
Call rates, Govt bonds
The inter-bank call money rate, the rate at which banks borrow money from each other to meet their short-term fund requirements, opened higher at 10.25 per cent from its previous close of 10.10 per cent.
The 7.16 per cent government bond, which matures in 2023, opened lower at Rs 90.4 from Monday’s close of Rs 90.75. Yields jumped to 8.63 per cent from 8.58 per cent.
S&P, Fitch and Moody’s have aired their concerns in recent weeks, as the slowdown in growth threatens to derail the fiscal austerity plans.
On Monday, S&P put India’s chances of a downgrade higher than Indonesia. This has elicited concerns among market investors.
According to forex dealers, besides a rating downgrade, threat of the Syrian war put pressure on the rupee. “There were no inflows and concerns over sovereign rating downgrade amid Russia’s defence minister’s statement triggered heavy sell-off in the forex market,” said a dealer with a public sector bank.
The Reserve Bank of India’s special dollar window for oil retailers had last week helped ease the offshore non-deliverable forward (NDF) contracts thereby limiting the losses due to speculation in the currency market.
However, this did not help as lower GDP and manufacturing sector growth data subdued investor sentiments yet again.
The rupee had touched a historic low of 68.80 against the US dollar on August 28.
Radhika Rao, Economist, DBS said, “Signs of trouble have sprouted of late. Since late May 13, the currency has depreciated sharply, pulling down the equity and bond markets in unison. The liquidity measures to support the currency instead intensified growth risks and narrowed the scope for the monetary policy to assume a growth supportive stance. In the meantime, the stark rupee decline is feeding into inflation and raising the imported fuel costs.”
She added: “Risks of a move to sub-investment rating are likely to resurface in late 2013 or early 2014 as pre-election spending has ramped up further and political worries heighten.”
Call rates, Govt bonds
The inter-bank call money rate, the rate at which banks borrow money from each other to meet their short-term fund requirements, opened higher at 10.25 per cent from its previous close of 10.10 per cent.
The 7.16 per cent government bond, which matures in 2023, opened lower at Rs 90.4 from Monday’s close of Rs 90.75. Yields jumped to 8.63 per cent from 8.58 per cent.
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