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Rupee plunges to record low of 47.02/$

The Indian rupee hit a new low against the dollar on Monday, weighed down by expectations of importer-led selling, but traders said there was little cause for concern while foreign fund inflows remained intact.

In early trade the rupee was dealt at 47.02 per dollar, marginally weaker than its previous low of 46.97 on Thursday. It recovered as large state-run banks, which normally act on behalf of the central bank, sold dollars, but eased again in late trading to a new low of 47.03 and closed at 47.00/02.

"I do not expect any major movements in the rupee unless we see big capital outflows... we are yet to see something of that sort," said Ravi Pai, head of forex trading at HDFC Bank.

Last week, the rupee fell nearly 1 per cent as the benchmark Bombay stock index plunged to over two-year lows after a series of payments problems, insider trading scandals and earnings warnings from technology firms.

But currency traders were surprised when the Securities and Exchange Board of India showed positive foreign funds' investment in stocks and bonds last week, albeit a meagre net $8.6 million, taking net inflows in 2001 to $1.85 billion.

Analysts said the linkage between the stock and rupee markets was relatively weak in the short term.

"Everybody's just looking at headlines. But most equity funds eyeing 20-30 per cent returns in the stock market do not worry much about one to two percent fall in the rupee," said M R Madhavan, head of research at Bank of America.

"Most of them do not hedge rupee exposures either," he said.

The central bank's intervention through state-run banks and its direct enquiries with large players helped in reining the rupee on Monday, dealers said.

More losses possible

Traders said larger concerns for the currency included global oil prices and the political uncertainty after an arms bribery scandal that disrupted Parliament last month and cast doubts on some sweeping reforms the government proposed in its budget for the fiscal year that began on April 1.

But analysts said the rupee could fall another 1 per cent to be fairly valued on the real effective exchange rate, an index based on a trade-weighted basket of currencies, following recent falls in many Asian currencies.

The Reserve Bank of India has said that the rupee, which is only partially convertible, can move freely in either direction provided there is no speculative action.

It mopped up the strong portfolio and direct foreign investments this year, reflected in mounting foreign exchange reserves which stood at a record $42.689 billion on April 6 -- a war chest if the rupee comes under heavy pressure.

It has also said the REER is only a medium-term reference for the rupee and temporary cross-currency noises should be ignored.

"One has to look at what has caused this (rupee against REER) overvaluation and whether it is permanent," a central bank official told Reuters.

By Monday afternoon, bankers said importers seemed less keen to buy dollars, preferring to wait and see if the rupee retraced.

K Rajaram, manager at textile firm Arvind Mills, said short-term charts showed the rupee could retrace to around 46.83 even though it had not conclusively tested a key level around 47.01.

"Failing that, if the dollar breaks past 47.04, it is headed for 47.15-47.20," he said.

Intra-day report

The rupee recovered from a lifetime low in Monday morning deals as large state-run banks sold dollars, dealers said.

The rupee hit a new intra-day low of 47.01 in some deals as banks bought dollars, anticipating demand from importers, but subsequently recovered to around 46.97/99, they said.

The rupee's previous low was 46.97 per dollar, hit on Thursday.

Dealers said the rupee was being driven down by a combination of factors - an uncertain outlook for the stock market, which hit 27-month lows on Thursday after earnings warnings in the technology sector and the need for the currency to adjust to an overvaluation on a trade-weighted basis.

Most dealers expect further depreciation in the rupee as it needs to correct for a near three percent overvaluation, driven by weakness in regional currencies.

Dollar purchases by a foreign fund and some large importers triggered the rupee's fall last week and dealers said enquiries from importers had begun quite early on Monday.

State-run banks sold dollars to rein in the rupee's slide and dealers said the sales could have been on behalf of the central bank.

As banks were holding long dollar positions, further falls in the rupee were likely to be limited unless there was strong import demand or repatriation by foreign funds, dealers said.

At 12:10 p.m, the benchmark Sensex was down 0.91 per cent at 3,152.51 points, while dollar forwards were quoted steady.

The six-month forward premium ended Thursday 14 basis points higher at 5.09 per cent.

Earlier, the rupee plunged to a new-low of Rs.46.97/47.01 against the US currency early, driven down by sustained heavy all round dollar demand.

Nervousness continued to grip the interbank foreign exchange market, as operators rushed to cover dollar positions and tested the rupee new-lows, dealer said.

Opening on a weak note at Rs.46.91/95 per dollar, the rupee later breached the 47.00-dollar barrier to be quoted at Rs.46.97/47.01 in late morning deals, sharply lower from last Thursday's lowest-ever close of Rs.46.87/90.

The rupee had earlier tested historic lows of Rs.46.95/97 minutes before the close of trading hours last Thursday.

Meanwhile, in cross currency trades, the euro was quoted at Rs 41.80/83, pound sterling at Rs 67.52/54 and Japanese yen (100) at Rs.37.70/73.

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