Stock Money exchange rupees
Inter-bank rates early on June 29 show the rupee slipping into 21.50 and over territory. Image Credit: Ahmed Ramzan/Gulf News

Dubai: The Indian rupee could drop past 21.50 levels to the dirham today for the first time as unremitting pressure builds up. Some FX analysts reckon it could be hitting 21.60 ahead of the weekend - unless the Reserve Bank of India makes a forceful move to calm rupee volatility.

Since yesterday (June 28), the rupee’s slide has picked up speed, and the prospect of hitting 22 levels edges closer. The pace of the softening against the dollar/dirham is faster than in the past, sources add.

In fact, ahead of the market’s opening today, the rupee to the dirham was showing 21.52. “This was only the indicative rates for the day, and when trading started, the rupee is around 21.47/8,” said a senior treasury analyst at LuLu Exchange. “But all indications suggest it would drop below 21.50.

“The FII (Foreign Institutional Investor) settlements are happening currently, and this could mean limited scope for the RBI to step in and stabilize the rupee drop.” FIIs have liquidated $39 billion of their exposure in Indian markets over the past nine months, 'making it the largest and longest sell-offs, even worse than the global financial crisis of 2008'. (FII settlements relate to investments made by foreign funds and which are typically squared off towards the end of a month. What this does is reduce the availability of dollars and that does a significant impact on the rupee-dollar rates.)

'Intermittent' interventions

Until now, any move by the RBI to correct the rupee’s course has been ‘intermittent’ according to a top official at Reliance Securities. Referring to Tuesday’s currency movements, Mitul Shah, Head Of Research, notes: “The Indian rupee hit a record low of 78.8 against the dollar, earlier in the session as elevated oil prices raised concerns of sustained inflation.

The RBI’s ‘intermittent dollar selling… helped limit losses.”

Clearly, that's a strategy requiring a rethink...

What's coming for the Rs?
"The current rate is at an all-time low of 78.86 against the dollar - a few factors are putting the currency under pressure," said Antony Jos, Director at Joyalukkas Exchange. "First, there is the outflow of foreign funds from the equity market to invest in dollar assets. The dollar managed to stay strong against all major currencies during the week and with expected 'aggressive' interest rate hikes in the coming month.

"Second, the Indian companies' settlement date of their import bills is towards the end of the month, continuing the demand for dollar outflows. The focus now would also be on ECB interest rates as there are also plans to hike. Hence, more foreign outflows could occur, which could have the rupee fall to 79.30.

"Plus, the rise in global crude prices continues to have a negative impact on the currency."