Indian Rupee Recovers After Hitting Record Low Amid Virus Scare
The rupee fell as much as 0.41% to a new record low of 74.52 against the dollar in early Friday trade. It’s now recovered.
The Indian rupee recovered after registering a new record low against the U.S. dollar, as the global and local spread of the coronavirus continues to widen.
The Covid-19 outbreak beyond China has soured the market mood globally, prompting central banks, including the Reserve Bank of India, to assure investors that they stand ready to take action. Many, including the U.S. Federal Reserve and the Bank of England, have announced emergency interest rate cuts. On Thursday, the RBI announced $2 billion in forex swaps to provide dollar liquidity to the forex markets.
Still, asset markets from equities to currencies continue to fall as investors throng to safer avenues like bonds and gold.
The rupee fell as much as 0.41 percent to a new record low of 74.50 against the U.S. dollar in early Friday trade. It had hit the previous all-time low of 74.48 on Oct. 11, 2018.
As of 11:09 a.m., the domestic unit recovered its opening losses to trade 0.23 percent higher at 74.01 against the dollar.
The rupee is under pressure and there won’t be any immediate respite, said K Harihar of First Rand Bank. The falling crude oil prices could cushion the selling pressure seen from the foreign investors as the former could lead to huge savings for India, he told BloombergQuint in an interaction.
Besides, PSU banks have been selling dollars to curb the rupee losses, Bloomberg reported quoting traders, who asked not to be identified as they are not authorised to speak to the media.
While trading levels are tough to predict in the current scenario, Harihar sees the rupee breaching the 75/$ level.
Heavy Outflows
The weakness in the rupee has been led by outflows by foreign portfolio investors, who sold Rs 33,164 crore in debt and equities in so far March. Apart from global factors, domestic concerns about financial stability have also hurt sentiment.
The RBI has adequate firepower to support the rupee should it feel to step in. As of the latest data, the RBI had forex reserves of $481 billion.
In its statement on Thursday, the central bank also assured that the current level of forex reserves at $487.24 billion remains “comfortable to meet any exigency”. At present it covers 12 months of imports.
“The sharp depreciation in the rupee, coupled with excess forex reserves (higher than optimal levels), was a clear indication that the RBI is likely to intervene to protect the currency,” said Kruti Shah, economist at Emkay Global Financial Services, while adding that the $2 billion in forex swaps announced are one such intervention measure. “We believe that foreign flows have been under pressure in Q4 due to Covid-19 and geopolitical issues relating to oil – but India is comparatively better off than other emerging market countries.”
Not Alone
The rupee has depreciated in-line with other Asian currencies, as economies across the region are facing similar pressures.
The rupee is the second worst performing currency in Asia after the Indonesian Rupiah over a one month period. The rupee weakened by 4.12 percent in the the past month, according to data from Bloomberg.