Search the Internet          Tips  Sites: Finance, Investment

Rupee falls over 3.6% vs dollar in 2001

A spate of negative factors, both domestic and global, pulled down the rupee to new record lows when it registered a massive 3.6 per cent fall against the US dollar during the first year of the new millennium.

The September 11 terrorists attacks on the United States followed by a similar attempt on the Indian Parliament on December 13 aggravated tension in the financial markets in India which were facing pressure right from the beginning of the year.

The Indian currency remained under pressure due to various factors, including the devastating earthquake that rocked Gujarat killing thousands at the beginning of the year, followed by border tension along with reported kickbacks in defence deals, prompting a rating downgrade by Fitch.

The second half of the year was the worst for the rupee as the markets reacted sharply to the terrorist attacks both in US and India, forex experts opined.

The rupee ended 2001 at 48.26 per US dollar before touching record low of Rs 48.43, thereby showing a fall of Rs 1.80 (3.6 per cent) during the year.

Commenting on the overall trend of year 2001, forex expert R K Amin at the Development Credit Bank feels that despite the negative situation, the rupee will not cross the Rs 48.50 level, provided there is no escalation in tensions on the Indo-Pak border.

The rupee may even appreciate in case war is averted, he said.

Even as the rupee reported a sharp fall against the US dollar, the domestic unit was relatively marginal compared to the steep fall in other major currencies against the dollar.

This was indicated by the stiff resistance offered by the rupee at certain levels, supported by a strong export-dollar supply and effective economic management, forex experts said.

The rupee opened the year on a steady note and started to trade with a bullish bias. Expectations of large foreign direct investment inflows gave an initial boost to the Indian currency.

The rupee tested the year's high of 46.33 in the month of January after a market report said that the new Bush Administration in the United States was likely to lift the remaining sanctions imposed on India following the nuclear tests conducted by it in 1998.

But the domestic unit could not hold on to its gains for a longer period. The Gujarat earthquake, border tensions, rating downgrade by Fitch, reported kickbacks in defence deals -- all these factors, one by one, changed the market sentiment against the rupee.

The second half of the year turned out really bad for the rupee. The rupee started the month of July at 47 plus level and the movements were steady in the range of 47.00 - 47.25 for the next 2-1/2 months.

However, the currency suffered its worst setback after the September 11 terrorist attack on World Trade Centre in New York. The rupee slumped to a record low of 48.43 per dollar after the attack.

The rupee had opened at 47.82/87 on September 17, 2001 but came immediately under bearish grip and slumped to a low of 48.43 in no time as panic-stricken importers scrambled to cover their dollars. However, timely dollar sales by large state-run banks (presumably on behalf of RBI) helped the rupee to recover to 48.01 level.

The currency got a boost in the last week of September after the US announced that it was lifting the economic sanctions imposed on India and Pakistan.

Although the rupee came under renewed pressure on news of the US airstrikes on Afghanistan, the unit recovered after RBI governor Bimal Jalan assured the market that the temporary mismatch in dollar demand and supply would be met by the central bank.

Thereafter, it was a smooth sailing for the rupee till the latest bout of volatility.

The Indian unit lost nearly 50 paise in the last week of December after Indo-Pak relationship reached its worst (after Kargil war) stage in the wake of the terrorist attack on Parliament house.

The rupee tested a low of 48.35 on December 28, 2001, but closed at a record low closing level of 48.26/27.

December 31, would be last day of trading in the year 2001 and the experts are sure the currency may not witness a great volatility, which will make any significant changes in the market.

The rupee's fall of 3.6 per cent in the current year was lower as compared to the fall in the previous calendar year.

The rupee had fallen sharply by Rs 3.18 (7.31 per cent) in the year 2000, despite collection of about 5.2 million US dollar by the State Bank of India through its millennium deposit fund.

Meanwhile, as per the cross currency calculations, the rupee depreciated around 3.27 per cent against the US dollar whereas the Japanese yen dipped about by 15 per cent, Australian dollar 10 per cent and the combined European currency, the euro by 7.5 per cent, pound sterling four per cent and Singapore dollar six per cent, indicating that the pressure of the economic slowdown was felt lesser in India than in other countries, forex experts pointed out.

The forex reserves of the country, which maintain a firm trend and stood at a record high of 47,837 million dollar in mid-December, reveal that despite the negative factors, there was surplus dollar supply which the Reserve Bank of India absorbed through state-run banks at least to keep the rupee marginally lower while all other currencies witnessed a free fall against the US dollar.

According to banking experts, in overseas, major currencies like yen, euro, pound generally move after release of key economic data like unemployment figures, trade data and GDP growth forecasts.

Statements from various financial officials and political leaders also influence the currency levels. But in India, the release of foreign exchange reserve data or the GDP figures hardly made any immediate impact on the US dollar-rupee movement.

There was a unanimous view among the forex experts that the US dollar movement in the forthcoming years will be dominated by the fight against terrorism as the clouds of war on the Indo-Pak border are forcing them to adopt cautious approach.

UNI

ALSO READ:
The Year That Was
Money
Business News

Tell us what you think of this report