Recovers to 63.25 after hitting record low of 64.13/$

Recovers to 63.25 after  hitting record low of 64.13/$
Highlights

Despite a heavy battering, the rupee on Tuesday made a smart recovery to close at 63.25 after hitting a fresh low of 64.13 against the dollar, helped by massive intervention by Reserve Bank. In the intra-day trade, the domestic currency commenced sharply weak at 63.75 a dollar from overnight close of 63.13. It sank below 64-mark to historic low of 64.13 on sluggish local stocks and continued dollar demand from importers.

Mumbai (PTI): Despite a heavy battering, the rupee on Tuesday made a smart recovery to close at 63.25 after hitting a fresh low of 64.13 against the dollar, helped by massive intervention by Reserve Bank. In the intra-day trade, the domestic currency commenced sharply weak at 63.75 a dollar from overnight close of 63.13. It sank below 64-mark to historic low of 64.13 on sluggish local stocks and continued dollar demand from importers.
However, the rupee later recovered smartly on dollar selling by RBI and exporters. It touched the day's high of 63.15, before settling at a closing low of 63.25, a fall of 12 paise over yesterday's close. "The RBI was seen selling dollars via state-run banks around the 64 levels, which helped rupee to trade stable and recover slightly," said traders. Forex dealers said the intra-day movement from the rupee against the dollar from 61.65 to 64.13 was swift.
Experts forecast spot Rupee to fall down further as dollar demand from defence and oil importers will force the local currency to trade near the 64.50 level in coming days. With the rupee breaching the 64 to a dollar mark intra-day, Finance Minister P Chidambaram held a meeting with top government functionaries, including Prime Minister's key economic advisor C Rangarajan.
Chidambaram, who met top officials for the second day in succession on Tuesday, may have also discussed the reform measures the government plans to take in the near future and steps that will bring back the economy to high growth path.
"Concentrated measures and efforts by the RBI are likely to show an impact in the long run but in the short-term, the rupee is expected to witness a bearish ride," said Dinesh Thakkar, Chairman & Managing Director, Angel Broking. It also slumped against the Japanese yen to 65.05 per 100 yen from last close of 64.44.
Home loans to get costlier as banks start raising rates
Hyderabad: The interest rate on personal, home, care loans are set to rise following fall in the rupee value against dollar. Many private lenders have already hiked their base rates – the rate to which all loans are linked. Private lender Axis Bank has increased its base rate by 25 basis points to 10.25 per cent on Monday. The HDFC Bank, YES Bank, Kotak Mahindra Bank and Andhra Bank had all hiked their rates earlier this month. However, the big lenders – SBI and ICICI Bank – yet to announce rate hikes.
While ICICI Bank on Friday raised interest rates on fixed deposit by 0.25-0.75 percentage points mainly on short-term deposits, which may be seen as a precursor to rate hikes. The banks are showing the reason for hiking the lending rates as the squeezing the liquidity following the recent RBI measures. It has pushed the benchmark 10-year bond yield to 9.84 per cent on Tuesday, indicating that borrowing costs are higher.
Bankers are saying that the yields are raising means the banks are sitting on huge mark to market losses and that is not good for the banking system. In its last policy review, RBI kept the repo rate kept at 7.25 per cent and CRR unchanged at 4 per cent. Then bankers say they will wait for two to three weeks before taking a call on raising lending rates. But now, with no signs of a reversal in RBI policies the lenders may be forced to hike rates.Thus, with no quick fix in sight, the banks fear may hit in their festival season business commencing from October, as the rise in interest rates hurt the industry and growth.
Barclays sees 1991 encore
Mumbai (PTI): Foreign brokerage Barclays looks at the present crisis similar to 1991-92 and said credit growth of banks will slow down to 10-11 per cent levels, just like it did during the crisis in eqrly 90s. "The current macro context and consequently the monetary policy challenges are similar to those in FY1992," it said in a note.
Drawing parallels between the ongoing economic scenario and the one during the dark period of 1991-92, like a sharp GDP slowdown, strained external account and sticky inflation. It can be noted that growth has fallen to a decade low of 5 per cent in FY13, the current account deficit is at a record high of 4.8 per cent, while the headline inflation also surged to 5.79 per cent due to the rupee depreciation, after showing ebbing for three months.
Moody’s retains rating at Baa3
Mumbai (PTI): International rating agency Moody's on Tuesday said the bleeding rupee, the twin deficits and weaker growth are already factored in the current Baa3 sovereign rating, and thus do not accentuate already weak fundamentals of the country.
"While the current rupee depreciation may be a new development, the factors that underpin it are not, and have been incorporated into the Baa3 rating," Atsi Sheth, Moody's Investors Service vice-president and senior credit officer at its sovereign risks group, said in a note.
This is because the current sovereign rating of Baa3 incorporates the macroeconomic challenges of weaker growth, the steep plunge of the rupee and the twin deficits, Sheth said. She also pointed out that even when the going was good for the country on the growth front, while averaging at 7-10 per cent, Moody's did not revise its rating outlook considering the weak fundamentals in terms of large government deficit and public debt, coupled with poor infrastructure.
Moody's became the first rating agency to retain the sovereign rating of Baa3 for the country after the rupee dived below 63 to the dollar, on Monday. It can be noted that Moody's is the only agency that has a stable outlook on the country's Baa3 sovereign rating, while others hold a BBB- rating with a negative outlook.
Citing lower-than-anticipated growth and a steep fall in the rupee, which lost 17.5 per cent as of today since the beginning of the fiscal, Sheth said it will be "very challenging" for the government to meet fiscal deficit target of 4.8 per cent.
The rupee plunged new lows in early trade on Tuesday to 64.13 to the dollar, and was trading at 63.63 to at 1410 hrs. Sheth further said the problem the country now faces are a reflection of the current global growth and financial environment.
According to Moody's, "the total fuel subsidies actually declined in April-June 2013, the first quarter of 2013-14, but because of the way the burden is shared out, the portion borne by the marketing and upstream companies rose overall, while that by the government fell."
S&P maintains negative outlook
New Delhi (PTI): Amid rupee sliding below 64 to a dollar, global agency Standard & Poor's on Tuesday said it will maintain negative outlook for the country as currency depreciation is adversely impacting investor confidence. "We view the capital outflows and depreciating rupee as an indication of weakening investor confidence in India .
We maintain a negative outlook on India's BBB- sovereign credit ratings," S&P Senior Director Sovereign and International Public Finance Ratings (Asia-Pacific) Kim Eng Tan said in an emailed statement. 'BBB-' is the lowest investment grade and a downgrade would mean pushing the country's sovereign rating to junk status, making overseas borrowings by corporates costlier.
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