The rupee fell by Rs 1.20 against the dollar, the sharpest single day fall in the recent past, on heavy dollar demand on Wednesday. Currency dealers said rupee came under pressure as FIIs sold heavily in the equity market.
This coupled with dollar demand from oil companies and foreign banks looking to make arbitrage gains, drove the rupee down for the second consecutive day.
The domestic currency opened weaker at 48.44 and fell further by around 90 paise to close at 49.30/32, as against the previous close of 48.10.
“Dollar demand from foreign institutional investors looking to exit the domestic equity indices, and oil importers are putting pressure on the rupee,” said Mr K. Harihar, Treasury Head, Development Credit Bank. There was sustained demand for the greenback from parties looking to book arbitrage profits due to the price differential, which is about 10-20 paise, in the spot and the non-deliverable forward (NDF) markets. The NDF market is an unofficial international market for trade in currencies. Banks that have a legal presence abroad buy dollars in the spot market and sell in the NDF market at higher rates. This is especially true for foreign banks, said a forex dealer.
As the New York markets were closed on Tuesday, there was hardly any fresh dollar supply, the dealer said.
The forward premiums also crashed with the 6-month ending at 2.49 per cent and the 12-month closing at 1.81 per cent.