Indian two thousand and five hundred rupee banknotes are arranged for a photograph in Mumbai, India. (Photographer: Dhiraj Singh/Bloomberg)

Rupee Hits 70/$-Mark For First Time

The Indian rupee fell past the 70 per dollar-mark for the first time in intraday trading, weighed down by an emerging market currency rout.

The rupee fell to an all-time of 70.075 against the dollar during the day’s trade. However, it pared losses to close at 69.89 against the dollar from its yesterday’s closing price of 69.93 per dollar. The currency is down almost 9 percent this year, making it Asia’s worst performer.

Rupee Hits 70/$-Mark For First Time

The local currency was hit hard by a recent Turkey-led selloff in emerging assets and the trade spat between U.S.-China.

Economic Affairs Secretary Subhash Chander Garg today said “rupee is depreciating due to external factors”. “There is nothing at this stage to worry.”

Responding to a question on what would be the local currency’s level against the dollar that would worry the government, Garg said he wouldn’t worry even if the rupee fell to 80 a dollar provided other currencies weaken as well. “India has sufficient foreign exchange reserves.”

A weaker rupee, however, can complicate the Reserve Bank of India’s task of keeping inflation in check.

The monetary policy committee led by Governor Urjit Patel increased interest rates twice since June to curb rising price pressures, while the RBI depleted $23 billion in foreign reserves to check currency volatility.

Government data on Monday showed retail inflation quickened 4.17 percent in July from a year earlier, slower than the 4.5 percent median estimate in a Bloomberg survey of economists.

Salil Datar, CEO, Essel Finance VKC Forex Ltd. said: “The typical factors that affect the Indian rupee from an economy point of view have not changed. The dollar index, has risen to 96 plus levels in the past couple of days as it is seen as a safe heaven. As long as oil continues to be at the current levels, we expect rupee to trade between 69.50 and 70.25 levels.”

Bhaskar Panda, senior regional treasury advisory group at HDFC Bank doesn’t expect further rupee depreciation from current levels.

Indian macros look good fundamentally. The rupee was expected to cross 70 per dollar-mark, which was an important resistance. These are good levels for exporters to hedge their position.
Bhaskar Panda of HDFC Bank

However, Sajjid Chinoy, chief India economist, JPMorgan believes it may not be meaningful to have a dollar-rupee target right now.

While he agrees that the rupee may depreciate further if dollar strengthens or if things get worse in Turkey, he said it may not matter too much as it would be in line with all its trading partners.

If you look at the trade weighted rate, the Indian currency has strengthened a lot between 2014 and 2018. In real terms, the rupee has appreciated almost 20 percent. In the last six months, it has only given up 6 percent of that. So we are still stronger compared with 2014 and from a competitive viewpoint, it would not necessarily be a bad thing if the rupee gradually weakens.
Sajjid Chinoy, Chief India Economist, JP Morgan

Meanwhile, Abhishek Goenka, founder and CEO, India Forex Advisors expects more dollar buying from foreign portfolio investors to hedge their rupee asset exposures. “The central bank may intervene less aggressively if the yuan continues to depreciate.”