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Indian Rupee breaches all-time lows
The Indian rupee has closed at a record low, it
was low of 52.73 against the dollar on December 12, 2011. It closed
at a record low of 52.83 against the dollar on December 14, 201 A plunge in industrial output, that ended in the negative zone for the
first time since June 2009 affected sentiments. Fears of capital outflows following weak economic data also hurt the currency.
On the global front, the euro dipped in Asia after the European Union
fell short of a convincing plan to resolve the debt crisis. The weakness
in Euro further added to the pressure on the Rupee. The Euro weakened
below 1.33/$ after ratings agency Moody's warned of EU downgrades.
Forex dealers said a slew of measures like plunging stock markets,
dollar gaining strength against its rivals in the overseas market weighed against the local currency which lost a whopping 81 paise
against the Greenback on December 12, 2011.
"As FIIs pulled out from markets due to weak IIP numbers, the rupee has
seen such a big fall today. Also, a weakening euro has added to the
pressure," Head of Treasury Operation of IDBI Bank, N S Venkatesh said.
Analysts said existing economic woes were compounded by decline in
industrial output which dent the confidence of investors.
"Energy constitutes the largest portion of India's import bill, and IOC,
together with the other unrated Indian refining and marketing companies
BPCL and HPCL, which import oil to supplement their small amounts of
domestic production, have the most direct exposure to a weaker local
currency," says Alan Greene, VP and senior credit officer at Moody’s.
The agency says in its report that the rupee depreciation also affects
the Tata Group's manufacturing companies with large foreign operations,
although Tata Steel Limited is the most vulnerable among these. The agency said that Indian exporters should benefit and companies would
be able to produce substitutes for now-more-expensive imports. However,
their increased revenues will mitigate but not offset the wider costs of
imported inflationary pressures on their input costs.
For auto exports from Tata Motors Limited, the firm's domestic base
operations will benefit little because its underlying, USD-linked raw
materials of steel now cost more. In addition, several international car
manufacturers use India as a base for the production of vehicles sold in
both domestic and export markets, so Tata Motors gains no competitive advantage, adds the report.
Moody’s report
While industry lobby groups in India are raising alarm bells on a sharp
slide in the value of the rupee, credit rating agency Moody’s says that
the sharp decline in the value of the Indian rupee is generally exerting
a moderate impact on rated Indian companies.
“Risks for those holding large amounts of USD-denominated debt are also
manageable in the near term, given that debt maturities are limited for
this time frame,” Moody's says in a new report. This means Indian companies rated by Moody’s do not have a significant
dollar outflow at a time when the Indian rupee is losing ground.
The agency Moody’s said that Indian exporters should benefit and companies would
be able to produce substitutes for now-more-expensive imports. However,
their increased revenues will mitigate but not offset the wider costs of
imported inflationary pressures on their input costs. |
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