Indian rupee hurtles lower as foreign investors flee

1 of 2. Indian Rupee notes are seen in this picture illustration taken in Mumbai June 12, 2013.

Credit: Reuters/Vivek Prakash

By Swati Bhat and Himank Sharma

MUMBAI | Wed Aug 28, 2013 8:37am EDT

MUMBAI (Reuters) - The Indian rupee slumped to a record low near 69 to the dollar on Wednesday on growing worries that foreign investors will continue to sell out of a country facing stiff economic challenges and volatile global markets.

The pummeling in markets sent the rupee reeling 3.7 percent to an all-time low of 68.85 with the unit closing just a touch off that, at 68.80/81 per dollar, its biggest single-day fall since October 1995.

It closed on Tuesday at 66.24/25.

In absolute terms too, the 256-basis-point fall in the rupee was the biggest ever.

An assault on the psychologically key 70 level now appears imminent, as intervention from the central bank seen mid-morning only gave the rupee a brief respite.

In the stock market, state-run Life Insurance Corp, which was spotted buying shares, allowed the domestic benchmark index to erase steep early losses and end the day stronger.

"If steps are not taken to implement the reforms necessary to tackle the structural issues, the government will be left with the so-called '3D options': debt default, devaluation, deflation," said Angelo Corbetta, head of Asia equity for Pioneer Investments in London.

"In India, devaluation is happening now and deflation could be about to start. The good news is that the debt default is highly unlikely."

Foreign investors have sold almost $1 billion of Indian shares in the eight sessions through Tuesday - a worrisome prospect given stocks had been India's one sturdy source of capital inflows in the first half of 2013.

If more foreign investors throw in the towel, traders fear it will put the country in a vicious cycle in which the hit to confidence in turn slams shares and the currency even harder.

Policymakers have consistently struggled to come up with steps that can convince markets they can stabilize the rupee and attract funds into the country despite extraordinary measures last month by the central bank to drain liquidity and action to curb gold imports and cut India's huge oil import bill.

RISING OIL PRICES, FED FEARS AMPLIFY PRESSURE

India badly needs foreign capital as it struggles with a record high current account deficit, growing fiscal pressures and an economy growing at the slowest in a decade.

The failure to address India's economic challenges is becoming an increasing source of tension at a time when fears of a possible U.S.-led military strike against Syria are knocking down Asian markets, with the prospect that the Federal Reserve will soon end its prolonged period of cheap money further raising concerns.

At the same time, rising domestic bond yields threaten to raise borrowing costs across the already slowing economy, while global prices of oil and gold - the country's two biggest imports - have surged this week.

"The end game for the current decline would be the day the rupee stops falling, alongside government measures like a substantial diesel price hike," said Samir Arora, a fund manager at Helios Capital in Singapore.

BNP Paribas on Wednesday slashed its economic growth forecast for India for the fiscal year to March 2014 to 3.7 percent from its previous 5.2 percent - the weakest growth since 1991-92 when India buckled under a balance of payments crisis that required a loan from the International Monetary Fund.

"India's parliament remains toxically dysfunctional with little, if any, business conducted," BNP said.

"And, with next year's general election looming ever nearer, the government's willingness to instigate a politically unpopular fiscal tightening is close to nil."

India is due to post April-June gross domestic product data on Friday, with analysts estimating the economy grew at an annual rate of 4.7 percent, roughly in line with the previous quarter. It will also post July federal fiscal deficit figures.

LACKING CONFIDENCE

The rupee has plunged more than 20 percent this year, by far the biggest decliner among the Asian currencies tracked by Reuters.

India's main National Stock Exchange index fell as much as 3.2 percent, although suspected buying by LIC led the index to recover in the afternoon.

Foreign investors are paring equity positions, having sold a net $3.6 billion in stocks since the start of June, but still their net purchases so far this year total nearly $12 billion.

Among the blue chips that fell the most on Wednesday were Axis Bank Ltd and ICICI Bank Ltd, a concern given foreign investors had so far largely held on to their investments in lenders, owning more than 40 percent of each.

In bond markets, foreign investors have sold more heavily, with outflows reaching nearly $4.6 billion so far this year.

Yet the government has so far failed to provide a coherent response, analysts said. Its approval of infrastructure projects on Tuesday was trumped by concerns about the fiscal deficit after India's lower house of parliament this week approved a 1.35 trillion rupees ($19.6 billion) plan to provide cheap gain to the poor.

In its latest initiative, the government late on Tuesday proposed setting up a task force to look into currency swap agreements, a measure analysts said could bring some relief if carried out in time by reducing market demand for dollars or other major currencies.

"Let's see what the authorities do, but if the government can come out with some really big currency swap arrangement with some countries, that can be a strong positive," said Uday Bhatt, a forex dealer with UCO Bank in Mumbai. ($1 = 68.8 rupees)

(Writing by Rafael Nam; Additional reporting by Abhishek Vishnoi; Editing by Kim Coghill and Nick Macfie)

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Indian rupee at record low again despite RBI intervention

A jeweller poses with silver plates in the form of Indian rupee notes inside a showroom in New Delhi August 19, 2013.

Credit: Reuters/Mansi Thapliyal

By Subhadip Sircar and Swati Bhat

MUMBAI | Wed Aug 21, 2013 8:34am EDT

MUMBAI (Reuters) - The Indian rupee plunged to a record low on Wednesday on heavy dollar demand from importers and as traders fretted over mixed signals from the central bank over its efforts to prop up the currency without choking off economic growth.

The rupee fell 2 percent to a record low of 64.5450 to the dollar despite what traders said was sporadic central bank intervention in both the spot and forward markets.

Measures by the Reserve Bank of India late on Tuesday to support longer-dated debt sent prices of beaten-down bonds sharply higher but also led traders to question the central bank's resolve in defending the currency.

Since mid-July, the RBI has taken steps to tighten cash conditions, which have failed to support the rupee but sent bond yields surging, posing a fresh threat to an economy that grew at a decade-low 5 percent in the last fiscal year.

"Currency market and participants may consider it as a reversal of RBI liquidity tightening measures to prevent currency volatility; thus some pressure on currency may re-emerge," said Anjali Verma, economist at PhillipCapital.

With a record high current account deficit at 4.8 percent of GDP, India is especially vulnerable to funds moving away from emerging markets in anticipation of a winding back of the U.S. Federal Reserve's stimulus program. Traders were looking ahead for clues from Fed minutes to be released later on Wednesday.

Deutsche Bank said in a note on Wednesday that the rupee could slide to 70 in a month or so, although some revival is expected by the end of the year.

The central bank's move to ease cash conditions after tightening them last month to support the rupee highlights the growing costs to the economy of stabilizing the currency.

"The bearishness seen across markets is largely a reflection of the fact that there is no quick fix solution to arrest the rupee fall," said Shakti Satapathy, fixed income strategist at AK Capital.

The partially convertible rupee closed at 64.11/12 per dollar, down 1.3 percent on the day, as importers led by oil refiners bought dollars. The 10-year bond yield closed down 49 basis points (bps) at 8.41 percent, its biggest single-day gain since mid-March 2009.

The yield on the benchmark 10-year bond earlier tumbled as much as 69 bps to 8.21 percent as its price rose.

The benchmark Sensex .BSESN closed down 1.9 percent as the falling rupee dented investor sentiment.

HIGHER BORROWING COSTS

Bond yields are up 86 bps since the RBI first started tightening market cash conditions in mid-July by raising short-term rates to keep rupee speculators at bay, pushing up the cost of credit for corporate borrowers.

Still, the rupee is down 6.7 percent since then.

The RBI said late on Tuesday it will buy 80 billion rupees ($1.26 billion) of bonds on Friday and will pare down its cash management bill sales as its target of pushing up the overnight rate to the central bank's emergency funding rate of 10.25 percent had been achieved.

The RBI relaxed rules on mandatory bond holdings for banks, known as the statutory liquidity ratio, which will help protect lenders from large mark-to-market losses. While banks had previously been asked to cut their hold-to-maturity bond holdings gradually to 23 percent of deposits, the RBI on Tuesday allowed banks to retain them at 24.5 percent of deposits.

"At the moment markets are definitely left guessing about the RBI's intention," said Upasna Bhardwaj, economist at ING Vysya Bank.

(Editing by Tony Munroe, Kim Coghill and Anand Basu)

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Indian rupee at record low again despite RBI intervention

A jeweller poses with silver plates in the form of Indian rupee notes inside a showroom in New Delhi August 19, 2013.

Credit: Reuters/Mansi Thapliyal

By Subhadip Sircar and Swati Bhat

MUMBAI | Wed Aug 21, 2013 8:34am EDT

MUMBAI (Reuters) - The Indian rupee plunged to a record low on Wednesday on heavy dollar demand from importers and as traders fretted over mixed signals from the central bank over its efforts to prop up the currency without choking off economic growth.

The rupee fell 2 percent to a record low of 64.5450 to the dollar despite what traders said was sporadic central bank intervention in both the spot and forward markets.

Measures by the Reserve Bank of India late on Tuesday to support longer-dated debt sent prices of beaten-down bonds sharply higher but also led traders to question the central bank's resolve in defending the currency.

Since mid-July, the RBI has taken steps to tighten cash conditions, which have failed to support the rupee but sent bond yields surging, posing a fresh threat to an economy that grew at a decade-low 5 percent in the last fiscal year.

"Currency market and participants may consider it as a reversal of RBI liquidity tightening measures to prevent currency volatility; thus some pressure on currency may re-emerge," said Anjali Verma, economist at PhillipCapital.

With a record high current account deficit at 4.8 percent of GDP, India is especially vulnerable to funds moving away from emerging markets in anticipation of a winding back of the U.S. Federal Reserve's stimulus program. Traders were looking ahead for clues from Fed minutes to be released later on Wednesday.

Deutsche Bank said in a note on Wednesday that the rupee could slide to 70 in a month or so, although some revival is expected by the end of the year.

The central bank's move to ease cash conditions after tightening them last month to support the rupee highlights the growing costs to the economy of stabilizing the currency.

"The bearishness seen across markets is largely a reflection of the fact that there is no quick fix solution to arrest the rupee fall," said Shakti Satapathy, fixed income strategist at AK Capital.

The partially convertible rupee closed at 64.11/12 per dollar, down 1.3 percent on the day, as importers led by oil refiners bought dollars. The 10-year bond yield closed down 49 basis points (bps) at 8.41 percent, its biggest single-day gain since mid-March 2009.

The yield on the benchmark 10-year bond earlier tumbled as much as 69 bps to 8.21 percent as its price rose.

The benchmark Sensex .BSESN closed down 1.9 percent as the falling rupee dented investor sentiment.

HIGHER BORROWING COSTS

Bond yields are up 86 bps since the RBI first started tightening market cash conditions in mid-July by raising short-term rates to keep rupee speculators at bay, pushing up the cost of credit for corporate borrowers.

Still, the rupee is down 6.7 percent since then.

The RBI said late on Tuesday it will buy 80 billion rupees ($1.26 billion) of bonds on Friday and will pare down its cash management bill sales as its target of pushing up the overnight rate to the central bank's emergency funding rate of 10.25 percent had been achieved.

The RBI relaxed rules on mandatory bond holdings for banks, known as the statutory liquidity ratio, which will help protect lenders from large mark-to-market losses. While banks had previously been asked to cut their hold-to-maturity bond holdings gradually to 23 percent of deposits, the RBI on Tuesday allowed banks to retain them at 24.5 percent of deposits.

"At the moment markets are definitely left guessing about the RBI's intention," said Upasna Bhardwaj, economist at ING Vysya Bank.

(Editing by Tony Munroe, Kim Coghill and Anand Basu)

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Indian rupee at record low again despite RBI intervention

A jeweller poses with silver plates in the form of Indian rupee notes inside a showroom in New Delhi August 19, 2013.

Credit: Reuters/Mansi Thapliyal

By Subhadip Sircar and Swati Bhat

MUMBAI | Wed Aug 21, 2013 8:34am EDT

MUMBAI (Reuters) - The Indian rupee plunged to a record low on Wednesday on heavy dollar demand from importers and as traders fretted over mixed signals from the central bank over its efforts to prop up the currency without choking off economic growth.

The rupee fell 2 percent to a record low of 64.5450 to the dollar despite what traders said was sporadic central bank intervention in both the spot and forward markets.

Measures by the Reserve Bank of India late on Tuesday to support longer-dated debt sent prices of beaten-down bonds sharply higher but also led traders to question the central bank's resolve in defending the currency.

Since mid-July, the RBI has taken steps to tighten cash conditions, which have failed to support the rupee but sent bond yields surging, posing a fresh threat to an economy that grew at a decade-low 5 percent in the last fiscal year.

"Currency market and participants may consider it as a reversal of RBI liquidity tightening measures to prevent currency volatility; thus some pressure on currency may re-emerge," said Anjali Verma, economist at PhillipCapital.

With a record high current account deficit at 4.8 percent of GDP, India is especially vulnerable to funds moving away from emerging markets in anticipation of a winding back of the U.S. Federal Reserve's stimulus program. Traders were looking ahead for clues from Fed minutes to be released later on Wednesday.

Deutsche Bank said in a note on Wednesday that the rupee could slide to 70 in a month or so, although some revival is expected by the end of the year.

The central bank's move to ease cash conditions after tightening them last month to support the rupee highlights the growing costs to the economy of stabilizing the currency.

"The bearishness seen across markets is largely a reflection of the fact that there is no quick fix solution to arrest the rupee fall," said Shakti Satapathy, fixed income strategist at AK Capital.

The partially convertible rupee closed at 64.11/12 per dollar, down 1.3 percent on the day, as importers led by oil refiners bought dollars. The 10-year bond yield closed down 49 basis points (bps) at 8.41 percent, its biggest single-day gain since mid-March 2009.

The yield on the benchmark 10-year bond earlier tumbled as much as 69 bps to 8.21 percent as its price rose.

The benchmark Sensex .BSESN closed down 1.9 percent as the falling rupee dented investor sentiment.

HIGHER BORROWING COSTS

Bond yields are up 86 bps since the RBI first started tightening market cash conditions in mid-July by raising short-term rates to keep rupee speculators at bay, pushing up the cost of credit for corporate borrowers.

Still, the rupee is down 6.7 percent since then.

The RBI said late on Tuesday it will buy 80 billion rupees ($1.26 billion) of bonds on Friday and will pare down its cash management bill sales as its target of pushing up the overnight rate to the central bank's emergency funding rate of 10.25 percent had been achieved.

The RBI relaxed rules on mandatory bond holdings for banks, known as the statutory liquidity ratio, which will help protect lenders from large mark-to-market losses. While banks had previously been asked to cut their hold-to-maturity bond holdings gradually to 23 percent of deposits, the RBI on Tuesday allowed banks to retain them at 24.5 percent of deposits.

"At the moment markets are definitely left guessing about the RBI's intention," said Upasna Bhardwaj, economist at ING Vysya Bank.

(Editing by Tony Munroe, Kim Coghill and Anand Basu)

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Indian rupee at record low again despite RBI intervention

A jeweller poses with silver plates in the form of Indian rupee notes inside a showroom in New Delhi August 19, 2013.

Credit: Reuters/Mansi Thapliyal

By Subhadip Sircar and Swati Bhat

MUMBAI | Wed Aug 21, 2013 8:34am EDT

MUMBAI (Reuters) - The Indian rupee plunged to a record low on Wednesday on heavy dollar demand from importers and as traders fretted over mixed signals from the central bank over its efforts to prop up the currency without choking off economic growth.

The rupee fell 2 percent to a record low of 64.5450 to the dollar despite what traders said was sporadic central bank intervention in both the spot and forward markets.

Measures by the Reserve Bank of India late on Tuesday to support longer-dated debt sent prices of beaten-down bonds sharply higher but also led traders to question the central bank's resolve in defending the currency.

Since mid-July, the RBI has taken steps to tighten cash conditions, which have failed to support the rupee but sent bond yields surging, posing a fresh threat to an economy that grew at a decade-low 5 percent in the last fiscal year.

"Currency market and participants may consider it as a reversal of RBI liquidity tightening measures to prevent currency volatility; thus some pressure on currency may re-emerge," said Anjali Verma, economist at PhillipCapital.

With a record high current account deficit at 4.8 percent of GDP, India is especially vulnerable to funds moving away from emerging markets in anticipation of a winding back of the U.S. Federal Reserve's stimulus program. Traders were looking ahead for clues from Fed minutes to be released later on Wednesday.

Deutsche Bank said in a note on Wednesday that the rupee could slide to 70 in a month or so, although some revival is expected by the end of the year.

The central bank's move to ease cash conditions after tightening them last month to support the rupee highlights the growing costs to the economy of stabilizing the currency.

"The bearishness seen across markets is largely a reflection of the fact that there is no quick fix solution to arrest the rupee fall," said Shakti Satapathy, fixed income strategist at AK Capital.

The partially convertible rupee closed at 64.11/12 per dollar, down 1.3 percent on the day, as importers led by oil refiners bought dollars. The 10-year bond yield closed down 49 basis points (bps) at 8.41 percent, its biggest single-day gain since mid-March 2009.

The yield on the benchmark 10-year bond earlier tumbled as much as 69 bps to 8.21 percent as its price rose.

The benchmark Sensex .BSESN closed down 1.9 percent as the falling rupee dented investor sentiment.

HIGHER BORROWING COSTS

Bond yields are up 86 bps since the RBI first started tightening market cash conditions in mid-July by raising short-term rates to keep rupee speculators at bay, pushing up the cost of credit for corporate borrowers.

Still, the rupee is down 6.7 percent since then.

The RBI said late on Tuesday it will buy 80 billion rupees ($1.26 billion) of bonds on Friday and will pare down its cash management bill sales as its target of pushing up the overnight rate to the central bank's emergency funding rate of 10.25 percent had been achieved.

The RBI relaxed rules on mandatory bond holdings for banks, known as the statutory liquidity ratio, which will help protect lenders from large mark-to-market losses. While banks had previously been asked to cut their hold-to-maturity bond holdings gradually to 23 percent of deposits, the RBI on Tuesday allowed banks to retain them at 24.5 percent of deposits.

"At the moment markets are definitely left guessing about the RBI's intention," said Upasna Bhardwaj, economist at ING Vysya Bank.

(Editing by Tony Munroe, Kim Coghill and Anand Basu)

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As Indian rupee hits record low, foreign investors baulk

1 of 2. A cashier counts Indian rupee currency notes inside a bank in Mumbai in this August 5, 2013 file photo.

Credit: Reuters/Danish Siddiqui/Files

By Rafael Nam and Himank Sharma

MUMBAI | Fri Aug 16, 2013 6:41am EDT

MUMBAI (Reuters) - The rupee fell to a record low on Friday as measures to curb foreign currency outflows were seen as the latest roll of the dice by policymakers struggling to defend the currency in a slowing economy and a toughening global investment environment.

Far from propping up the currency, the measures from the Reserve Bank of India late on Wednesday to restrict how much its citizens and companies can invest abroad raised fears of outright capital controls that would further undermine the confidence of foreign investors.

Indian policymakers have cobbled together a slew of steps over the past month in a bid to halt the rupee's slide, including the central bank's extraordinary steps on July 15 to drain cash from the system and raise short-term interest rates in an economy already growing at a decade low.

Yet none of the steps unveiled so far have convinced investors that India can attract overseas investments, which is seen as essential in narrowing a record high current account deficit that is the biggest source of the rupee weakness.

The approach is beginning to test the patience of foreign investors, just when emerging markets such as India are already seen as particularly vulnerable ahead of the expected tapering of monetary stimulus by the U.S. Federal Reserve.

"They're coming across as a bit panicky. That's what is damaging sentiment for investors," said Jonathan Schiessl, a fund manager at Ashburton Investments in Jersey, referring to the RBI's actions to defend the rupee.

"Unless things improve, we will probably in all likelihood be withdrawing some weightings from our India positions."

The partially convertible rupee fell to an all-time low of 62.03 to the dollar as trading began. By 0500 ET, it was trading at 61.88, weaker than its Wednesday's close of 61.43/44. Markets were closed on Thursday for a holiday.

SLIP SLIDING AWAY

The central bank's capital outflow restrictions came a day before the dollar spiked after U.S. jobless claims data on Thursday suggested an early end to the Fed's asset purchases.

That prospect looms over India at a time when it is suffering from a current account deficit that hit a record high of 4.8 percent of gross domestic product and an economy growing at a decade low of 5 percent.

Foreign investors have already sold a net $11.6 billion of Indian debt and equities since late May, sparking fears of continued weakness.

India's main NSE index .NSEI fell 4 percent at one point on Friday, while benchmark 10-year bond yields surged to their highest since May 2012 as prices headed for their worst week in four-and-a-half years.

UBS strategist Manik Narain said that as emerging central banks tightened policy to defend their currencies, stocks would be affected, something that is already happening in India.

"India is losing control over the currency and you are starting to see the weakness transmitting to stock markets. There could be a self-perpetuating cycle where currency weakness flushes out equity investors and that takes the rupee weaker still."

CAPITAL CONTROLS?

The RBI's new measures also included further capping the amount that companies can invest abroad.

But overseas investments from India had already been on the wane, averaging a monthly $400 million in the first half of the year from $710 million in 2012, according to DBS data.

The biggest fear is that the RBI's action could be the start of a far stronger move to restrain capital.

"The steps taken so far only target residents, but if this raises expectations that they could potentially resort to capital controls targeted at non-residents, that could have adverse near-term implications for capital flows," HSBC's Chief economist for India and ASEAN Leif Eskesen said.

"It will, therefore, be critical to tread very carefully when it comes to capital controls, to anchor expectations, and also not use it as a substitute for more appropriate and effective measures," Eskesen said in a note to clients.

RUPEE FALLS

As policy makers struggling to find a solution for the rupee's falls, investors expect more weakness ahead. Overseas investors betting via one-month offshore non-deliverable forwards quoted the rupee trading at 62.46, while onshore bets see the rupee at 62.35 within the month.

Meanwhile, a Reuters poll on Thursday showed short positions in the Indian rupee have hit the highest in two months.

At heart of India's failed defense of the rupee so far is that none of the measures unveiled so far have given markets assurance that the country can attract foreign flows in an increasingly difficult global environment.

India last month unveiled plans to further ease restrictions on foreign direct investment (FDI) but previous measures have had mixed results. FDI fell to $36.9 billion in the fiscal year ending in March from $46.6 billion the previous year.

This week it announced measures to attract near-term capital inflows, including by spurring state-run companies to sell debt abroad and raising funds from Indians abroad.

Yet doing so could prove hard without major confidence-inspiring reforms, especially as RBI measures last month to drain cash raise the prospect that borrowing costs will rise.

"We remain underweight on Indian credits as the current spreads do not offer enough compensation in our view," said Arthur Lau, head of fixed income for Asia ex-Japan for Pinebridge Investments in Hong Kong

(Additional reporting by Swati Bhat, Subhadip Sircar & Aradhana Aravindan in MUMBAI, and Umesh Desai in HONG KONG; Editing by Kim Coghill)

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