Rupee slips below 70/$
Recovers after RBI stepped in
The Indian rupee plunged to yet another record low on Tuesday breaching the psychological 70 level mark against the US dollar as concern regarding the currency crisis in Turkey spreading to other emerging markets forced investors to shun riskier assets and seek the safety of US dollar.
The rupee hit a lifetime low of 70.08 a dollar in the intra-day trade following a 1.6 per cent drop in the previous session. It finally ended the session at 69.89 a dollar, after a suspected RBI intervention to smoothen the fall. Indian rupee is the worst performing currency in Asia, down 8.7 per cent in 2018 till date.
Blaming external factors for the current round of weakness in the rupee, economic affairs secretary Subhash Chander Garg said there is nothing to worry at the moment as India has sufficient foreign exchange reserves.
The rupee plunged to yet another record low on Tuesday breaching the psychological 70 level mark against the US dollar as concern regarding the currency crisis in Turkey spreading to other emerging markets forced investors to shun riskier assets and seek the safety of US dollar.
“Current sharp movement and volatility in the rupee is essentially reflecting the global risk aversion amid recent geopolitical developments that led to plunging of Turkish Lira and Russian Rouble. Global investors have been shying away from risky emerging market assets in general, keeping emerging market forex including the rupee precarious,” said Sajal Gupta, head of forex, Edelweiss Securities. Apart from the US-China led trade rhetoric’s, he said the US Federal Reserve’s reiteration of its steady rate path and the emerging concerns around major European banks’ exposure in Turkey have added another layer of uncertainty in the markets. “The rupee dynamics are unlikely to remain insulated from EM despite recent correction in crude prices,” he added.
Forex market participants said that the steep fall in the rupee on Monday caught lot of importers off-guard due to which there was panic buying of dollars. “The rupee had enjoyed good psychological support at 69 level mark and once that got taken out in one of the biggest single day fall in last five years, a sense of panic has set in. Importers were seen aggressively buying dollars in the forward market putting further pressure on the rupee,” said Abhishek Goenka, chief executive officer (CEO), India Forex Advisors. If the current crisis persists and the global riskoff sentiment continues, Mr Goenka said the rupee could further weaken and head towards 72 – 73 a dollar in the coming weeks.
Experts are also concerned about the impact of rupee weakness on India’s current account deficit. The falling rupee would make imports costlier putting additional pressure on India’s CAD.