Rupee cracks to fresh multi-month low on capital flight fears

Mumbai: The rupee took a severe beating against the US dollar to end at a fresh three-month low of 64.73 as importers rushed to cover unhedged positions on the back of concerns that an imminent Federal Reserve interest-rate increase will accelerate capital outflows.

Stamping its largest weekly decline this year, the Indian currency depreciated by a staggering 52 paise amid a short-term recovery in the USD.

Forex market sentiment was impacted after the FOMC minutes of the latest policy meet cemented expectations that the Fed will hike rates under its new chief Jerome Powell next month and showed more confidence on the economic outlook and increasingly optimistic on reaching their 2 per cent inflation target.

Mounting concerns over a multiple interest rate increases from the Federal Reserve this year and also overrun by extremely bullish dollar undertone, panic-stricken importers rushed to cover their overseas liabilities as the local unit turned highly volatile in the last few trading sessions.

The rupee had briefly breached the significant 65-mark to hit a new three-month low of 65.11 during the mid-week trade amid chaos in currency and financial markets caused by volatility.

Heavy dollar demand to meet payment liabilities and overseas commitments in the face of import finance restrictions after the alleged Punjab National Bank's stunning USD 1.77 bn fraud announcement also impacted the rupee trade, a forex dealer said.

However, expectation of robust capital inflows into local equity and debt markets alongiwh easing dollar pressures from importers and currency speculators in the midst of central bank intervention largely helped trim early losses.

Meanwhile, country's forex kitty rose by USD 1.960 billion to USD 421.720 billion in the week to January 16, due to increase in foreign currency assets.

The reserves had touched a life-time high of USD 421.914 billion on February 9, FY18. It had crossed the USD 400-billion mark for the first time in the week to September 8 but has since been fluctuating.

In the international energy front, extreme bullish sentiment returned to the energy market as global crude prices rose across the board after the EIA reported a surprise drawdown in crude oil stocks and also supported by a dramatic fall in Venezuelas oil output despite production restraint led by the Organization of the Petroleum Exporting Countries (OPEC) and Russia.

Brent crude futures settled at a fresh two-week high of USD 66.31 a barrel during the week.

The rupee opend the week with a gap down at 64.50 from weekend close of 64.21 and witnessed a precipitious tumble to mark its worst daily fall this year at the Interbank Foreign Exchange (forex) market due to sustained dollar pressure.

It later collapsed below the key 65-mark to hit a low of 65.11 before regaining some lost ground to end at 64.73, revealing a sharp loss of 52 paise, or 0.81 per cent. The RBI, meanwhile fixed the reference rate for the dollar at 64.8227 and for the euro at 79.7643.

On the global front, the greenback rallied against a basket of major currencies on Friday, extending its recovery from a three-year low last week, as the potential for a more aggressive US Federal Reserve prompted investors to pare bearish bets against the greenback.

The dollar index, which measures the greenback's value against a basket of six major currencies, was higher at 89.99.

In cross-currency trade, the rupee made a modest recovery against the British pound to settle at 90.25 per pound from 90.34 and also bounced back against the euro to end at 79.59 as compared to 80.18 last weekend.

The home unit, however remained under pressure against the Japanese Yen to finish at 60.59 per 100 yens from 60.50. In the forward market, premium for dollar fell sharply due to sustained receiving from exporters.

The benchmark six-month forward dollar premium payable for July dropped to 115-117 paise from 128-130 paise and the far-forward contract maturing in January 2019 also tumbled to 240.50-242.50 paise from 263.50-265.50 paise last Friday.