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Rupee drops to new five-year low

Posted by Yogesh on Friday, 3 October, 2008

MUMBAI: The rupee weakened to its lowest in more than five years on Friday, weighed down by a stronger dollar overseas and losses in local shares, but heavy dollar sales by a large company helped trim losses.

By 10:20 am (0450 GMT), the partially convertible rupee was at 46.86/87 per dollar after hitting 47.30, its lowest since May 2003 and 0.5 per cent weaker than 46.62/63 on Wednesday. The market was shut on Thursday for a holiday.

“The dollar has gained against other currencies overseas and the equities are down, so there are expectations of more capital outflows from local stocks,” said V Kumar, chief dealer at State Bank of Travancore.

“But there was a big corporate who sold dollars at 47.30 level, which helped the rupee recover some losses,” he added. The dollar hovered near a one-year peak against a basket of major currencies as banks and financial institutions scrambled to buy the U.S. currency after being locked out of frozen money markets.

Sensex started 1.6 per cent lower, tracking weaker Asian markets and overnight losses on Wall Street. Dealers said sentiment was also weakened by lower rupee rates in the offshore market. One-month non-deliverable forward contracts were quoting at 47.28/38.

“We believe that the rupee has potential to depreciate further towards 48 … in the near term if the dollar cash shortage continues to persist,” economists Indranil Pan and Kaushik Das at Kotak Mahindra Bank wrote in a note this week. “The economic fundamentals will continue to remain weak till the end of this fiscal and therefore we do not see any scope of a sharp turnaround,” they wrote. Source The Economic Times

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