Indian rupee eyes 50 mark vs US dollar

Oil companies will be the major casualties of the fall. The steep fall in the rupee will also add pressure on inflation as India imports more than 75 per cent of its oil requirements. International travellers will also bear the brunt of shelling out more rupee for each dollar.

However,exporters are expected to benefit as they get more Indian rupees while exchanging the greenback. Though IT companies are expected to gain from the rupee fall,the grim prospects of earnings potential from Eurozone and the US will neutralise the gain.

Finance Minister Pranab Mukherjee said the Reserve Bank will intervene in the foreign exchange market “as and when the situation warrants”. “Right now,there is no such situation,” Mukherjee said after meeting leading Indian industrialists at an investment forum in New York.

The RBI needs to more actively intervene in the country’s foreign exchange market to stem the rupee’s fall as imported inflation rises and exchange rate volatility risks increase,Standard Chartered Bank said in a research note. The RBI,in its mid-quarter policy review last week,said that the rupee’s depreciation may have adverse implications for inflation. Foreign exchange dealers have suspected the RBI’s presence in the foreign exchange market in recent sessions,but it hasn’t been significant to turn the rupee’s fortunes. The RBI’s stated position is that it intervenes only to stem excessive volatility. But in recent years,it has largely let the rupee free unlike its Asian peers.

The RBI’s hands-off policy may have made the unit more vulnerable during periods of risk aversion,the report said. Standard Chartered,however,said the RBI is yet to signal that forex-related risks have risen significantly. This may be partly due to the RBI’s higher tolerance and partly due to the liquidity implications of higher intervention,the note said. Higher intervention will lead to a squeeze in rupee liquidity from the system,lowering system cash to “undesirable levels,” it said. “Hence,intervention is likely to stay sporadic and low,aimed at addressing volatility rather than imported inflation risks,” it said.

The RBI didn’t buy or sell foreign currencies in the eight months through July after purchasing a net $870 million in November 2010,according to RBI data. The bank sold dollars after the rupee fell below 48 against the dollar on September 14 for the first time in two years.