Rupee Declines to Rs 68.75 Vs US Dollar Wednesday Aug 28,2013

 

The rupee plunged to a new record low of 68.75 per dollar in the late morning trade on persistent dollar demand from banks and importers due to further fall in equity market amid rise in crude oil prices

The rupee resumed lower at 66.90 per dollar, as against the Tuesday Aug 27,2013 closing level of 66.24 per dollar at the forex market and dropped further to an all-time low of 68.75 per dollar at 10.45 hrs (IST)

The rupee nosedived by 3.7% to an all-time low of 68.85 intra-day before closing at 68.80/81on Wednesday (recording its biggest single-day drop of 256 paise in 18 years on Wednesday, closing at a new historic low of 68.80)compared to its previous close of 66.24/25 on Tuesday

Forex dealers said besides strong month-end demand for the American currency from importers, concerns related to subsidy burden after the passage of Food Security Bill and capital outflows mainly weighed on the domestic currency

The Rupee was more or less stable for much of the first half of 2013 and has depreciated by 16 % or more vis-à-vis the dollar over the last two months (see Chart)

The volume of trading in exchange-traded currency derivatives increased from Rs. 2.6 billion in September 2008, when such trading was first permitted, to Rs. 234.4 billion in June 2013, the RBI hints at a link between this and exchange rate volatility

The RBI which has been pointing fingers at the currency derivatives market as a speculative hub where the dollar rules higher, now argues that prices in those markets, or those driven by speculation, are beginning to influence spot dollar prices in terms of the rupee

The Reserve Bank recently banned proprietary trading by banks in the currency futures/exchange-traded currency options markets. Such trading is allowed only on behalf of clients

 SEBI also tightened exposure norms for currency derivatives to check excessive speculation by increasing margin requirements and curtailing open positions on currency derivatives