Punters are betting that the government and RBI do not mind the rupee depreciating along with other emerging market currencies
The non-deliverable forward (NDF) market is putting downward pressure on the rupee, which closed at another lifetime low of Rs 70.73 to the dollar on Thursday, falling by 15 paise over the previous day's close.
Punters in the NDF market are betting that the government and the Reserve Bank of India (RBI) do not mind the rupee depreciating along with other emerging market currencies.
Today's fall, forex experts said, is also because of month-end dollar buying by importers. Crude prices have also moved higher at $77 a barrel.
But the NDF market is also playing a part. The rupee rates in the NDF market is at 71.03 per dollar. NDF is an over-the-counter market that requires very little documentation. NDF is open through the week and is most active in Singapore, Hong Kong, London, Dubai and parts of Europe. It offers a platform for speculative trades and hedging and frontruns the domestic forex market. Speculators buy dollars cheap in the Indian markets and sell it higher in the NDF market, beating down the rupee.
Ritesh Bhansali, assistant vice-president-forex risk consulting at Mecklai Financial Services, said, "The NDF market is putting pressure on the rupee. Speculators in the NDF market think that the government and RBI will allow the rupee to fall so there is heavy betting on the rupee which may push it Rs 72 to the dollar levels. There is an expectation among market participants about the current account deficit (CAD) widening from 2.5% of GDP to 2.8% or 2.9%. Fiscal slippage expected to be in the range of 3.5% to 3.6% of GDP from the projected target of 3.3%.
The NDF forward transactions are settled in dollars with the rupee being non-convertible meaning it cannot be delivered outside the country. FPI, foreign banks in India and some multinational corporations buy one-month forwards in India to sell in the NDF market and cash in the difference. These offshore trades jack up the demand for dollars in the domestic forex market.
During the day the rupee slid to Rs 70.86 to the dollar after opening at Rs 70.59 to the dollar.
Sajal Gupta, head - Fx and rates, Edelweiss Securities LTD, said, "Rupee needs more support from RBI or some big global positive news. The trend remains weak until some sizeable intervention by RBI verbal or actual. There is a lot of panic buying among importers and equity investors as well who want to hedge the currency risk now. Our macros remain robust, but panic is the key factor behind current volatility. Everyone is a buyer of dollars in the current market."
However, some forex experts say the pressure on the rupee is from domestic forces.
Pritam Patnaik, head, commodity, Reliance Securities, said, "We are witnessing a significant domestic dollar demand on the backdrop of the defence and oil related buying. Add to this, on Wednesday, the rupee breached the crucial 70.38 levels against the dollar, which was a major resistance level and was holding for the last 10 sessions. The pressure on the rupee is a homegrown phenomenon, primarily due to fiscal slippages witnessed in the economy. We don't expect the rupee depreciation to continue unhindered, as RBI is expected to rein in the volatility with timely interventions.
IN A FREE FALL
- Punters are betting that the government and RBI do not mind the rupee depreciating along with other emerging market currencies
- There is heavy betting on the rupee in the NDF market, which may push it Rs 72 to the dollar levels
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But the NDF market is also playing a part. The rupee rates in the NDF market is at 71.03 per dollar. NDF is an over-the-counter market that requires very little documentation. NDF is open through the week and is most active in Singapore, Hong Kong, London, Dubai and parts of Europe. It offers a platform for speculative trades and hedging and frontruns the domestic forex market. Speculators buy dollars cheap in the Indian markets and sell it higher in the NDF market, beating down the rupee.
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