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How COVID-19 unsettled Rupee

India’s central bank announced a $2-billion dollar-rupee swap to be held on March 18 to ensure dollar liquidity.

, ET Bureau|
Last Updated: Mar 12, 2020, 10.44 PM IST
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MUMBAI/KOLKATA: The rupee looked relatively unsettled in the local markets Thursday after the Covid-19 scare encouraged exaggerated bets on the Indian currency in the overseas rupee trading platforms, leading to more arbitrage opportunities on the unit.

Institutions were seen selling the rupee in the offshore one-month forwards to a record 75.15 a dollar while one-month forwards in the local market was at about 74.50, widening the gap to 65-70 paisa earlier Thursday.

"The offshore rupee is showing signs of imminent pressure on the local rupee,” said Anindya Banerjee, currency analyst at Kotak Securities. “Speculators have turned active due to the widening differential between offshore and onshore markets. The surge in spreads will further encourage arbitrage bets.”

India’s central bank announced a $2-billion dollar-rupee swap to be held on March 18 to ensure dollar liquidity.

“Following the RBI’s announcement, the one-month NDF forward came down about 10-12 paisa but the gap of NDF forward vis-à-vis one month on-shore premium remained elevated at about 50 paisa, amid overseas dollar demand,” said KN Dey, founder at United Financial, a forex advisory firm.

The gap was within 10-15 paisa a few days earlier.

"Rising risk aversion across asset classes has brought considerable pressure on emerging market currencies, including the rupee. The magnitude of the premium quoted in offshore non-deliverable market for long dollar against the rupee continues to reflect the unwinding pressure of long rupee carry position,” said B Prasanna, global markets head at ICICI Bank.

He said that while the fall in oil prices should stem the rupee’s decline, the currency may remain volatile near term.

Institutions are increasingly seen short-selling rupee against cross currencies including yen,euro, pound sterling. This too aided dollar strengthening in NDF market, said a dealer.

The rupee lost 0.77% to close at 74.21 per dollar Thursday, its lowest level since October 10, 2018. The currency hit an intra-day low at 74.34, very close to the all-time low of 74.48 on October 11, 2018.

Clearing Corporation of India (CCIL), however, reported a freak trade of 74.50 a dollar, which is technically a record low.

“It was likely a retail trade, running into a few thousands of dollars,” said a senior executive privy to the matter.

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