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Rupee sell-off may continue as investors rush to dollar safety

A senior treasury head of a public sector bank predicted that on the short term, there will be pressure on the rupee.

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 Rupee is expected to be in a bear grip as risk-averse foreign portfolio investors (FPI) may continue to sell their positions in the debt and equity markets.

Forex dealers said FPIs may take a while to take fresh positions in the market. Friday's comeback in the equities was due to intervention of domestic institutions such as LIC and banks while the Reserve Bank of India injected dollars in the market. A senior treasury head of a public sector bank said, "There are too many uncertainties to worry about, so for the short term there will be pressure on the rupee. There is now a rethink of Brexit, other countries are also voicing the need to exit the European Union (EU) and Scotland wanting a separate referendum as they want to stay in the EU." The Reserve Bank of India will be forced to intervene in the market during the week to rein in the rupee as the FPIs are expected to run for cover either in the US Treasuries, gold or the yen, the three safe havens that have strengthened following the Brexit.

Jamal Mecklai, chief executive officer of Mecklai Financial, told dna, "The pressure on the rupee is expected to continue with the risk-averse foreign investors preferring to stay away from the emerging markets."
A senior banker said, 'Immediately the pressure may continue but the dust will settle down. We have been asked to stand by for any eventuality in the market and dollar payments for customers will also be held back for a few days."

In the calendar year 2016, the equity market had a net portfolio inflow of $2.8 billion, while the debt outflows stood at $1.1 billion. FPIs divested Rs 641.17 crore in the last one week. Currencies across the world declined following the Brexit. While the Singapore dollar had declined by as much as 1.65% against the US dollar from the closing levels on the preceding day, the South Korean won had lost 3.22%, the Chinese renminbi fell 0.53% and the Indian rupee lost 1.04% during intra-day trade. This followed the pound falling to a more-than-30-year low against the US dollar and the euro falling to its lowest levels since 1999. Currency markets will remain under pressure until the dust settles and the trade agreements are negotiated once again.

manju.ab@dnaindia.net

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