Rupee Weakens Past 75 To A Dollar For The First Time
The Indian rupee fell sharply to hit a record low on Thursday as global markets continued to tumble and the dollar surged.
The rupee weakened past 75 to a dollar to a record low against the dollar, as the greenback strengthened and foreign portfolio outflows continued.
The rupee fell more than 1 percent to close just at 75.03 against the dollar. Intraday, on Thursday, the rupee fell to a low of 75.31 but recovered. Traders cited state-run banks selling dollars in a bid to ease the currency’s drop.
So far this month, the rupee has weakened 2.9 percent.
The weaker rupee accelerated selling in the government bond markets. Sovereign yields rose sharply by 11 basis points to 6.41 percent despite the Reserve Bank of India’s announcement that it will purchase Rs 10,000 crore in government bonds under the open market operations programme on Friday.
The Indian currency is responding to both global triggers and heavy selling by foreign investors in the local market.
Overnight, the U.S. Dollar index surged 1.6 percent to a three-year high of over 100. In Asian trade, the dollar continues to trade strong. Investors are rushing to the safety of the dollar as turbulence driven by the spread of coronavirus hurts most global markets and asset classes.
Along with the rupee, most Asian currencies traded weak on Thursday, with the Korean Won losing the most.
The Indian rupee has also been hurt by the surge in outflows due to foreign portfolio selling in debt and equity markets.
Foreign investors have sold a net of Rs 79,172 crore in Indian debt and equity so far this month. This is the highest monthly selling on record and has surpassed the selling seen during the taper tantrum in 2013.
Meanwhile, crude oil prices have fallen sharply to below $25 per barrel. Lower oil prices will provide a buffer for the Indian economy which is a large oil importer and are typically positive for the rupee.
“The rupee’s performance in CY20 will be caught between improving the balance of payments amid oil correction and the home-grown issue of still-stressed credit conditions,” said Madhavi Arora, economist (forex and rates), Edelweiss Securities.
The global risk assessment, foreign flows, and dollar funding market will play a crucial role a well. “Dollar funding could become a difficult and emerging market forex could remain under pressure as FPIs demand a higher emerging market risk premium.”
Edelweiss expects the rupee to trade in a range of 72.75-75.50 against the dollar.