Rupee sinks to 61.21 against dollar, hits record low - NDTV

The rupee fell to a record low on Monday, forcing the RBI to come to its defense, while bond yields surged, highlighting the vulnerability of a country dependant on capital inflows to fund its big current account deficit. The rupee's slide to an all-time low of 61.21 is sparking speculation about potential measures from the Reserve Bank of India, including providing a special window for oil companies to buy dollars. The central bank will meet officials from oil companies, the biggest buyers of dollars in domestic markets, later on Monday to discuss their foreign exchange needs, two sources with direct knowledge of the matter told Reuters. Meanwhile, Finance Minister P. Chidambaram is due to travel to the United States from Monday in a previously scheduled trip to drum up foreign direct investment, particularly in the infrastructure sector. The rupee, emerging Asia's worst performer this year, is likely to remain weak after stro nger-than-expected U.S. jobs data on Friday cemented bets the Federal Reserve will wind down its quantitative easing (QE), sparking outflows from emerging markets. At the same time, a spike in oil prices - with Brent crude futures hitting a more than three-month high on Monday - is aggravating concerns about India's current account deficit. "The QE tapering has had a larger impact on CAD currencies. India too has been bearing the brunt of the risk of continuing outflows by portfolio investors," said Shubhada Rao, chief economist at Yes Bank in Mumbai. The QE tapering will have a larger impact on currencies of countries with sizable current account deficits, said Shubhada Rao, chief economist at Yes Bank in Mumbai. "India too has been bearing the brunt of the risk of continuing outflows by portfolio investors," she said. "Weakening rupee, along with rising oil, is not good news for India. As such, rupee will come under continued pressure. We expect pol icymakers to take more administrative steps to bring some stability to the currency market." The rupee was trading at 61.06 at 12.46 p.m., breaching the previous record low of 60.76 on June 26. Earlier on Monday, it hit an all-time low of 61.21. It had closed at 60.225/235 on Friday. Three traders said the central bank likely started selling dollars when the rupee was trading at around 61.15 levels, while two other dealers said the RBI was spotted a little earlier at around 61.21 levels. The Indian rupee has weakened 10 per cent this year, the worst fall in emerging Asia, because of a current account deficit that hit a record 4.8 per cent of gross domestic product in the fiscal year that ended in March. BONDS SLUMP Bonds fell to a two-month low as foreign investors have sold more than $7 billion in debt since May 22. The 10-year yield rose as much as 13 basis points to 7.63 per cent from its previous close. The surge in yields led th e Fixed Income Money Market and Derivatives Association of India to remove trading bands for the day, a measure it also adopted when the rupee was last plumbing record lows late last month. The 5-year overnight indexed year surged 15 basis points to 7.69 per cent, while the 1-year rate was up 7 basis points at 7.57 per cent, further widening the gap between the two after both rates disinverted on Friday for the first time in two years. Traders said among potential measures, the RBI could also curb speculative positions by imposing limits on intraday or overnight net open position limits. Meanwhile, the government could review limits for foreign investment in sectors such as defence, or issue a sovereign bond to non-resident Indians, dealers said. Copyright Thomson Reuters 2013 via Business - Google News http://news.google.com/news/url?sa=t&fd=R&usg=AFQjCNF11GpFiDVpCBHK1PsRgn1XIS6h8w&url=http://profit.ndtv.com/news/forex/article-rupee-sinks-to-61-21-against-dollar-hits-record-low-324191

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