Rupee trades near record low over Europe concern

Mumbai:  India's rupee was little changed, trading near a record low, after overseas investors increased sales of local assets on concern Europe's debt crisis will worsen.

The Bloomberg-JPMorgan Asia Dollar Index, which tracks the region's 10 most-active currencies excluding the yen, dropped for a fifth day after the European Central Bank said it will suspend lending to some Greek banks to limit risk. Funds based abroad cut holdings of Indian shares by $114 million over May 15 and May 16, exchange data show. The rupee, Asia's worst- performing currency this quarter, pared losses yesterday on speculation the central bank will seek to curb losses.

"Until we see matters settle in terms of Greek debt and the wider European crisis, we are unlikely to see strength among most Asian currencies," said Vikas Babu, a trader at state-run Andhra Bank in Mumbai. "Traders are cautious, expecting the Reserve Bank of India will announce some policy measures to support the rupee."

The rupee was at 54.4850 per dollar in Mumbai, compared with 54.4950 Wednesday, according to data compiled by Bloomberg. It touched an all-time low of 54.5850 earlier. The currency weakened 6.6 per cent this quarter, while South Korea's won fell 2.6 per cent in the region's second-worst loss.

The rupee's one-month implied volatility, a measure of exchange-rate swings used to price options, fell 65 basis points, or 0.65 percentage point, to 12.35 per cent. It touched this year's high of 13 percent yesterday.

The Reserve Bank is closely monitoring the rupee's movement and will act if needed, Deputy Governor H.R. Khan told reporters at Pokhara in Nepal Wednesday. The monetary authority is considering selling dollars directly to oil importers to ease demand for the greenback in the market, a central bank official said, asking not to be identified.

The RBI may offer dollars to oil companies at its daily reference rate for the local currency, according to B. Mukherjee, director of finance at Hindustan Petroleum Corp., India's third-largest state-run oil refiner.

"The Reserve Bank may sell dollars to importers at its reference rate whenever the rupee falls sharply, and this will reduce dollar demand in the market," Mumbai-based Mukherjee said in an interview. "This has happened in the past and could again happen in the near future."

Six-month onshore currency forwards traded at 56.21 a dollar, compared with 56.20 Wednesday, and offshore non- deliverable contracts were at 56.43 from 56.41. Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in dollars.

The rupee's movement "will be reliant on action" by local policymakers, analysts at Westpac Banking Corp., including Sydney-based Robert Rennie, wrote in a report yesterday. "India has already had one failed attempt to prevent" rupee losses and the currency may now drop to 55, he wrote.