MUMBAI, 20 October 2005 — The rupee fell to a fresh 11-month low yesterday as the firm dollar overseas sparked concerns that importers will buy the US currency and that foreign funds will continue lightening their holdings in Indian stocks.
Traders said the rupee, which is down 2.7 percent since the start of this month, is also expected to stay under pressure due to an arbitrage opportunity between the onshore and offshore rupee forward market.
One-month non-deliverable dollar-rupee forwards (NDFs) are trading at a premium of 0.5 percent to the spot rate. Foreign investors, who use the NDFs to bet on the rupee, were buying dollars onshore and selling offshore, pocketing about 0.20 rupee for every dollar, dealers said.
At 9:50 a.m. (0420 GMT), the partially convertible rupee was quoted at 45.31/33 per dollar, down from the previous close of 45.16/1675 which was the weakest since Nov.4 when it ended at 45.2050/2150. “The arbitrage opportunity remains and foreign fund outflows are a real concern,” said a chief trader at a private sector bank. “Unless the central bank comes and sells some dollars, we see a one-way street for the rupee.”
Data showed foreign funds have pulled out more than $220 million from the stock market so far this month. Shares fell 1 percent to their lowest level in nearly a month on Tuesday and outflows led to a 0.65 percent fall in the rupee — its largest single-day loss since Oct. 10. Foreign fund investments have cushioned the rupee against the rebounding dollar and a widening trade deficit for most of 2005.
Dealers will eye India’s central bank, which intervened a little in the previous session. The central bank has intermittently been selling dollars through state-run banks in the past few sessions to cushion the rupee’s slide.