With the rupee facing continuous pressure, it hit an intra-day low of 85.81 to the dollar on Friday. Meanwhile, the forex reserves, the central bank's primary tool for stabilising the currency, have been steadily declining. For the reporting period ending December 20, reserves dropped by $8.5 billion to a seven-month low of $644.39 billion, sufficient to cover around 11 months of imports.
The rupee fell by 38 paise from the previous close to settle at 85.5914 on Friday, as the dollar continued its rally and importers bought up the greenback during the busy season. Traders expect further pain for the rupee, with forecasts predicting it could reach 86 by March.
According to the weekly forex data released by the RBI on Friday, the reserves declined by a whopping $8.478 billion in the reporting week, making it biggest weekly fall in over a month. They had declined by a total of $5.2 billion in the prior two weeks and this is the third recurring week of losses. The week ending November 22 had seen the highest ever fall of the kitty at $17.8 billion.
The RBI has been selling dollars to contain the wild volatility in the rupee and has from October sold more than $50 billion in doing so. That apart it has also spent a whopping $49 billion to defend the unit in the offshore market in October alone, which though would not reflect in the forex data.
The reporting week’s fall is also due to the valuation effect of the foreign currency assets, which are the biggest component of the reserves, decreased by $6.014 billion to $556.562 billion, the RBI said. Expressed in dollar terms, the foreign currency assets include the effect of appreciation or depreciation of non-US units like the euro, pound and yen held in the foreign exchange reserves.
For the rupee, today’s was the deepest cut in seven months and has so far this year weakened by 3 percent against the US dollar, and is on course to post annual losses for seventh year in a row, a currency analyst said, adding today’s fall in the ninth day in a row, closing below the psychologically key level of 85.50 for the first time. The rupee worst fall in recent months was on June 4 when it lost more than a percentage point value.
On a monthly basis too, the rupee is set for worst month in two years. The rupee fell nearly 0.3 percent on the week, its eight consecutive weekly fall.
While currency traders at Kotak see the rupee crossing the 86.50 mark by March end, those at Nuvama and HDFC Bank see at 86 by the fiscal end. A trader at a public sector bank said she expects the unit to trade in the 86.25-60 range by end March.