Rupee dips further to record low of Rs.46.

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Thursday, September 18, 2008 18:02 [IST]

New Delhi: The Indian rupee continued to weaken Thursday and fell to a record low of Rs.46.71
to a US dollar on increased dollar buying by foreign institutional investors (FIIs), analysts said.

'FIIS are selling heavily in the share markets and since they get their money in rupees they are
buying dollars for forward remittance to their respective countries,' said Jagannadham
Thunuguntla, head of capital markets of India's fourth largest securities brokerage house, the
Delhi-based SMC Group.

On the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE), the combined
net sales of FIIs have been Rs.88.8 billion since Sep 1 till date, BSE data shows.

Since Jan 1, the net sales by FIIs have been as much as Rs.781 billion, much of which they have
remitted back to their respective countries in dollars putting pressure on the rupee.

The Indian central bank, Reserve Bank of India's reference rate was Rs.39.42 to a dollar Jan 1.
The reference rate is based on rates at 12 noon of a few select banks in Mumbai.

Thus, with the reference rate being Rs.46.71 to a dollar Thursday, the rupee has depreciated by
as much as 18.5 percent since the beginning of this year.

'Although this could just be a coincidence, but increased activity resulting from participation of
more players after the start of currency futures trading on the NSE may also have had some
impact on the exchange rate,' Thunuguntla said.

Currency futures trading started Aug 29, with the RBI reference rate being Rs.43.73 the previous
day - Aug 28.

Thus, the depreciation has been as much as 6.81 percent in just the last 20 days or so,
Thunuguntla said.

In comparison, the depreciation since Aug 1 till the start of currency futures trading was only 3.2
percent in 28 days, and only about 11.7 percent since Jan 1 till Aug 28.

Currency futures trading has now allowed more players to participate in the currency exchange
market and the increased activity may be having some effect on the exchange rate, he felt.
'The RBI, however, has refrained from any major intervention in the foreign exchange market
otherwise the rupee would have begun to recover instead of sliding further,' Thunuguntla said
adding that the RBI may let the rupee fall further before intervening.