Rupee will settle down: P Chidambaram

NEW DELHI: With the rupee declining to a two-month low of 63 to a dollar, Finance Minister P Chidambaram today assured the domestic currency will stabilise.

"Rupee will settle down," he told reporters here. In early trade today, the rupee fell to 63.33 to a dollar, its weakest since September 18.

The Indian currency started weakening since last week after the dollar purchase by oil companies was partly shifted to the market.

"Rupee weakness is due to OMC forex demand being moved to market. 30-40 per cent of OMC demand has moved to market," Economic Affairs Secretary Arvind Mayaram had said last week.

The PSU oil companies are the biggest buyers of dollars, requiring USD 8-8.5 billion every month for the import of an average 7.5 million tonne of crude oil.

In August, the Reserve Bank had opened a special window to help the three state-owned oil marketing companies -- IOC, HPCL and BPCL -- to meet daily foreign exchange requirements and buy dollars directly from RBI.

The rupee has recovered over 8 per cent since August 28, when it fell to a record low of 68.85 to the dollar. The gain in rupee had followed optimism that the US Federal Reserve would delay the tapering of its bond buying programme.
In September alone, the rupee had rallied more than 10 per cent.

However, today the unit plunged more than 60 paise to one-month low against the dollar at 60.03 in opening trade.

This was on renewed fears that the US Fed would look at scaling back its stimulus soon as the latest US data showed the world's largest economy is clawing back faster than expected.

In fact, the plight of the rupee started after the US Fed in its May 24 meeting hinted at shutting in a phased manner the easy money tap-repurchase of USD 85 billion worth of T-bills every month.

This had led to a spike in US interest rates, enticing FIIs to plumb for better returns back home by exiting emerging markets.

This had led to scary situation on the already high current account position in the country, leading to battering of the rupee.

As a result, FIIs had sold domestic debt worth more than USD 13 billion between the May-end Fed warning and early September and a couple of billions in stocks.