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    Default Rupee falls past 50 vs dollar as election results weigh

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    The Indian rupee weakened past 50 against the dollar on Tuesday as unfolding state election results raised question about the federal government's ability to revive stalled reforms process, a key driver for continued strong foreign capital inflow.

    At 11:03 am, the rupee was at 49.95/96 to the dollar, after dipping to 50.04, a level not seen since Jan. 25, according to Thomson Reuters data, and down from Monday's close of 49.835/845.

    "The present picture of state election results indicates that the Congress-led government (in New Delhi) may not have the strength to push through reforms and (will have to) resort to populist measures in the upcoming budget," said a senior foreign exchange trader with a large private-sector bank.

    The Congress party, which leads the United Progressive Alliance's federal government, was ahead in just 28 seats out of the 403 assembly seats in the crucial north Indian state of Uttar Pradesh.

    "This means fiscal deficit will be under more pressure, something which could negatively affect stock markets and dollar inflows."

    India's main share index has risen over 13 percent and foreign investors have poured in $12.76 billion into local stocks and debt so far this year.

    The strong inflows have helped the rupee rebound 6 percent in 2012 after sliding around 16 percent last year.

    Government data last month showed the country's fiscal deficit during April to January was 105.4 percent of the full-year target.

    "It is quite possible that the rupee may slip to 51, if the negative sentiment continues," said a foreign exchange dealer with a state-owned bank.

    In such a situation, intervention from the Reserve Bank of India is key to arrest the rupee's fall, traders said.

    The RBI has been actively intervening in the foreign exchange market to support the rupee, which had touched a record low of 54.30 on Dec. 15, by selling dollars and also taking steps to curb speculation and boost dollar inflows.

    In December, the RBI sold more than $9 billion in the spot and forwards markets, its biggest intervention in nearly three-and-half years, data released by the RBI in February showed.

    The one-month offshore non-deliverable forward contracts were at 50.43.

    In the currency futures market, the most-traded near-month dollar-rupee contracts on the National Stock Exchange, the MCX-SX and the United Stock Exchange all ended around 50.29, on a total volume of $1.07 billion.

 

 

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