The rupee slid to a 19-month low against the dollar as concern that rising crude oil prices could widen the country’s current account deficit and stroke inflation combined with fears of a trade war that could spur capital outflows to weigh the Indian currency down.
The rupee fell 0.54%, or 37 paise, against the dollar on Wednesday to settle at 68.61, the currency’s lowest close since November 24, 2016, when it ended at 68.73.
The Indian rupee has slumped almost 7% against the dollar so far this year, making it one of Asia’s worst performing currencies.
Likely intervention
On Wednesday, it touched an intra-day low of 68.68 in afternoon trade, which may have prompted the central bank to intervene by selling dollars, dealers said.
Forex traders said the rupee’s depreciation is in line with other emerging market currencies as the dollar index has strengthened in the wake of the U.S. Federal Reserve raising interest rates.
“Like other EM currencies, rupee too has developed a strong depreciation bias due to the fast strengthening of the dollar index as the Fed has been steadily raising interest rates,” said Rupa Rege Nitsure, group chief economist, L&T Finance Holdings.
“Elevated oil prices are also weighing on rupee as India's dependence on oil imports is very high. Other factors that are impacting Indian currency are the political uncertainty in the wake of upcoming State elections and the general elections of 2019. This combined with the concerns over earnings outlook has led to FPI [foreign portfolio investor] outflows,” she said.
Brent crude futures were 4.9% higher at $77.91 a barrel in late European trade.
Concerns about inflation and the fiscal deficit also impacted bond prices with the yield on the 10-year benchmark government bond rising 4 basis points to 7.87%.
‘Reserves cushion’
“On the positive side, the rupee's weakness should aid our exports amid improving global growth outlook,” Ms. Nitsure said.
“India enjoys a good cushion of foreign exchange reserves and the RBI is in a good position to control heightened volatility in the currency,” she added.
Equities too fell, with the NSE Nifty index declining by 97.75 points, or 0.9%, to a three-week low of 10,671.40 due to losses in energy, PSU bank, media, infrastructure, realty and metal stocks amid signs of an escalating trade war between the U.S. and other world economies.
Traders also opted for caution before the June expiry of derivative contracts due Thursday. Sector-wise, energy dropped by 2.46%, PSU banks fell 2.43%, media shed 2.12%, infra lost 2.04% and realty retreated 1.79%.
Other industry groups that fell include metal 1.26%, autos 1.25%, financial services 0.86% and private banks 0.83%.
( With PTI inputs )
Published - June 27, 2018 07:35 pm IST
