Rupee Falls Below 68/$ To Become Asia’s Worst Performer In 2018
The Indian rupee fell to its lowest level since January 2017, closing below the psychologically important mark of 68 against the U.S. dollar.
The currency remained volatile through the session as markets digested the outcome of the state elections in Karnataka, where the ruling Bharatiya Janata Party won enough seats to become the single largest party but fell short of winning a majority. The political scenario added to the existing concerns like higher oil prices and outflows from the debt markets, pushing the local unit lower.
The rupee fell to an intraday low of 68.14 against the dollar before closing at 68.11 - down 0.86 percent from its previous close of 67.52.
The rupee’s fall was a knee jerk reaction to the Karnataka elections, said Jamal Mecklai, chief executive officer of Mecklai Financials. “The way the Karnataka elections have panned out, has created possibilities of domestic political uncertainty,” Mecklai told BloombergQuint.
While the day’s volatility may have been driven by politics, the Indian rupee has also depreciated in response to a change in global and domestic macro conditions.
Prime among these is higher oil prices. A larger oil import bill could mean that India’s current account deficit widens to 2.3 percent of the GDP in the current fiscal year from 1.9 percent of the GDP last year, said HSBC Global Research in a report on Tuesday.
Meanwhile, portfolio outflows have picked up. Foreigners have sold a net of Rs 22,071 crore in Indian debt so far this year. Total outflows from the debt and equity markets combined stand at Rs 17,096 crore.
These domestic factors, together with the trajectory of the U.S. Dollar and global monetary policy, will determine the outlook for the rupee, said Samir Lodha, head of QuantArt Market Solutions.
The rupee has depreciated 6.22 percent against the U.S. dollar since the beginning of the year versus a 6 percent appreciation in 2017.