₹ plumbs new low at 70/$
HARD PRESSED Crisis in Turkey makes rupee worst performer of this year; govt not worried NEW DELHI:
The rupee plumbed new depths on Tuesday, dipping below 70 per dollar for the first time in a rout of emerging market currencies led by the Turkish lira, complicating the job of the Reserve Bank of India (RBI, potentially upsetting the government’s fiscal math and handing fresh ammunition to political opponents of the Narendra Modi government.
By the close of trading, the rupee clawed back some of its losses to end at 69.89 per dollar, up from its previous day’s close of 68.93 . In intra-day trading the currency hit a lifetime low of 70.08, following a 1.6% drop in the previous day’s trading. The rupee’s loss of 8.7% so far this year makes it the worst performing Asian currency. Dealers said some state-owned banks sold dollars to bolster the rupee, perhaps at the behest of RBI.
“The sharp drop in the domestic currency complicates the RBI’s job of keeping inflation in check as India imports oil and even if oil prices stay at the current level, it will cost more to buy it. Moreover, this is more worrisome for corporate entities that have foreign currency borrowings,” said Soumyajit Niyogi, associate director, India Ratings and Research.
A weaker currency makes the RBI’s job of keeping inflation in check by making imports more expensive. The RBI’s monetary policy committee led by Governor Urjit Patel has already cut its key interest rate twice by 0.25% each since June the highest in two years to check prices and spent $23 billion to stanch volatility in the exchange rate.
The latest round of currency weakness came on the back of a plunge in the value of the Turkish lira, but the rupee had already been under pressure amid the US-China trade war and rising oil prices. The possibility of further weakness and rise in oil prices could put pressure on government finances.
Price pressures have eased recently, with retail inflation slowing to 4.17% in July from 4.92% in June, but the rupee’s weakness portends a likely resurgence in prices, likely prompting more rate by the central bank, which is targeting a consumer price index (CPI) rate of 4%, plus or minus 2%.
“The weak rupee is indeed making life difficult for Patel and his fellow members of the monetary policy committee,” said Hugo Erken, a senior economist at Rabobank International in the Netherlands. “The RBI tightening cycle will put an end to the current free fall.”
The National Democratic Alliance government was sanguine.