Rupee hits record low as Fitch cuts Japan rating
Currency at mercy of external environment
Mumbai: India's rupee dropped to an all-time low as investors sought the relative safety of the dollar after Japan's sovereign-credit rating was lowered by Fitch Ratings.
The rupee erased earlier gains after Japan's long-term, local currency grade fell by one step to A+ with a negative outlook. The Dollar Index, which tracks the currency's performance against those of six major trading partners, rose 0.2 per cent. The rupee had strengthened earlier after the nation's central bank curbed trading in derivatives.
"The rupee is at the mercy of the external environment," Dariusz Kowalczyk, a Hong Kong-based strategist at Credit Agricole CIB, wrote in a report yesterday. "Further policy steps to arrest depreciation are likely as yesterday's curbs on futures and options exposure of banks are insufficient."
The rupee declined 0.6 per cent to 55.3600 per dollar in Mumbai, according to data compiled by Bloomberg. It touched an all-time low of 55.3925 earlier and has slumped 8.1 per cent this quarter in Asia's worst performance.
The rupee's one-month implied volatility, a measure of exchange-rate swings used to price options, rose eight basis points, or 0.08 percentage point, to 13.08 per cent.
The Reserve Bank of India said on Monday that outstanding currency futures and options contracts held by a bank shouldn't exceed $100 million or 15 per cent of the total such agreements, whichever is lower, on local exchanges. Lenders can't offset derivative trades against those in the over-the-counter market, the monetary authority said in a statement.
The move may cap the rupee's weakness "in the short- term," Wee-Khoon Chong, a Hong Kong-based strategist at Societe Generale SA, wrote in a report. "There is no easy solution for RBI at the moment with strong rupee depreciation pressure, on-going inflationary pressure and deceleration of growth."
India's inflation rate unexpectedly accelerated to 7.23 per cent in April from 6.89 per cent the previous month, official data showed last week. The nation's gross domestic product grew 6.1 per cent in the last quarter of 2011, the slowest pace in three years, latest government data show.
