Indian rupee fell for the third straight day to become the worst-performing Asian currency this week as worries over retrospective taxation and weak economic data spurred dollar outflows.
The currency ended at 63.56/$ on Friday, down 0.37% from Thursday’s close and 1% weaker so far in 2015. At this level, the currency is the weakest among its Asian peers, such as Indonesian rupiah, Malaysian ringitt and South Korean Won. Currency dealers say if the momentum of the dollar outflows persists, the rupee could weaken to even 64/$ in the next few weeks.
While most December-end forecasts for the rupee are around 65/$, a Citibank technical report said the currency could fall as low as 68-69/$ over the next 6-7 months. “We are vulnerable right now to external and internal shocks. Essentially, if we see another round of dollar strength, it is possible it may go to 68/$, but I think this is unlikely, and rupee would settle around 65/$ over a period of time,” said Ananth Narayan G, regional head of financial markets for South Asia at Standard Chartered Bank.
Currency dealers predicting a modest fall of the rupee to around 65/$ are banking on the Reserve Bank of India’s intervention in the forex market. The RBI was said to have sold dollars to curb volatility in the rupee on Thursday but was largely absent in the market on Friday. The central bank has been a net buyer of dollars since 2014. “There has not been any notable dollar selling to give indication of the intervention today,” said a currency dealer with a public sector bank.
A weak trade data from the government showed trade deficit widened to a four-month high in March mainly due to a 21% fall in exports and a forecast of weak monsoon by the Indian Meteorological Department earlier this week dampened sentiment on the economy.
A fall in local shares owing to weak corporate results also weighed, dealers said. Sensex ended 1.07% weaker while the 50-share Nifty of the National Stock Exchange closed 1.1% lower on Friday.
Alongside, data from the depositories showed that foreign institutional investors have been selling Indian bonds over the last three days and have turned net sellers so far in April, the first time in 12 months. FIIs have sold $289 million worth of bonds so far in April.
Meanwhile, the benchmark 10-year bond yields rose 3 basis point, to 7.77% on rupee weakness and cautious sentiment ahead of bond auction.
For Updates Check Banking & Finance News; follow us on Facebook and Twitter
