Rupee sees rapid decline in two weeks
MUMBAI: The turn of fortune for India’s rupee couldn’t be more rapid. It has gone from being Asia’s best performer to the worst in two weeks.
A rebound in prices of oil, the nation’s top import, and concerns about an expensive bailout for farmers before general elections to be held by May has caused the rupee to miss out on a revival in emerging currencies. Funds are instead piling into the Indonesian rupiah and Chinese yuan on optimism over trade talks and signs of a Federal Reserve rate hike pause.
The rupee “may be leading the divergence within EM Asia and unless oil’s trajectory changes it will be a short,” said Vishnu Varathan, head of economics and strategy at Mizuho Bank Ltd in Singapore. The currency will trail Asian peers “as oil’s amplified effects via inflation, current account and fiscal channels are bumping up against renewed concerns about fiscal slippage from farm waivers.”
The rupee has slid about a percent versus dollar this year after posting the best quarterly gain since March 2017. The Bloomberg Jpmorgan Asia Dollar Index and almost all regional currencies have strengthened, led by the rupiah and the Thai baht. Goldman Sachs Group Inc. predicts the rupiah to outperform the rupee because of diverging impact of oil prices, portfolio flows and monetary policy sensitivities to the US Fed. Aberdeen Standard Investments, which held $384 billion global assets in June, is advising inves- tors to sell Indian government bonds and pile into Philippine debt. A Bloomberg survey of analysts forecast a drop to 71.20 per dollar by 31 March. Mizuho Bank sees the currency’s drop extending to 72.50 by end-march, while ING Group expects it to test 73 levels during the period. The rupee fell 0.1% to 70.49 as of 1:36 pm in Mumbai.
The rupee “may continue to underperform Asia like what happened last year when Asia’s most oil-dependent currencies, including IDR and PHP, were hit hard,” said Prakash Sakpal, economist at ING Groep NV in Singapore. “However, domestic factors are more prominently negative for rupee this year than last.” India relies on imports to meet about 80% of its energy needs and higher costs may unsettle the government’s fiscal math. Every $10 rise in oil prices widens the current-account gap by $12.5 billion, or 43 basis points of the gross domestic product, and bumps up inflation by 49 basis points, according to a central bank study.
The rupee Friday weakened by 8 paise to close at 70.49 against the US dollar on rise in demand for the American currency from exporters coupled with unabated rise in global crude oil prices.
RUPEE ON FRIDAY WEAKENED BY 8 PAISE TO CLOSE AT 70.49 AGAINST THE US DOLLAR ON SURGING CRUDE OIL PRICES