People hold Indian rupee banknotes for a photograph in India. (Photographer: Dhiraj Singh/Bloomberg)

Rupee Hits 71/$; Sees Its Biggest Monthly Fall In Three Years

The Indian rupee hit another low as rising crude oil prices were seen putting strain on the nation’s finances, amid an emerging market currency rout.

The local currency fell past 71 per dollar mark for the first time in early trade and recorded biggest monthly drop in three years. The rupee closed at 70.9962 against the dollar.

Rupee Hits 71/$; Sees Its Biggest Monthly Fall In Three Years

The rupee was Asia’s second-worst performer today after South Korean Won, as the dollar strengthened on strong U.S. inflation and consumer spending data. However, on a year-to-date basis the local unit remains the worst performer--down 10.1 percent this year so far.

Rupee Hits 71/$; Sees Its Biggest Monthly Fall In Three Years

The selloff in emerging-market currencies was also driven by an 18 percent drop in the Argentine peso, including a nearly 4 percent decline in the Turkish lira. Meanwhile, rising crude oil prices have been adding to the pressure on the home currency. Oil is on track for a second consecutive week of gains, after two months of losses. Oil prices have climbed 8 percent in the last 10 sessions.

“All emerging market currencies are currently vulnerable against the stronger dollar. Expect rupee to touch the 72-mark. Currency pressure makes a strong case for RBI to hike interest rate, by 50 basis points or so,” Anand Bagri, domestic market head at RBL Bank, told BloombergQuint.

The overall sentiment on the street is pessimistic, said Abhishek Goenka, founder and chief executive officer at India Forex Advisors.

Importers and companies with borrowing in foreign currency are scampering for cover... RBI has been intervening through nationalised banks intra-day but it can do little to prevent gaps. Elevated crude prices may cause the rupee to under perform its stable emerging market counterparts.
Abhishek Goenka, Founder &CEO, India Forex Advisors

The domestic currency weakened 3.57 percent against the greenback this month--its biggest monthly decline since August 2015--when it had fallen 3.66 percent. Moreover, the rupee depreciated for the seventh straight month in August, its longest losing streak in nearly 18 years.

“The knock-on effect of weakening developing-market currencies, elevated oil prices and fears of fiscal slippage before next year’s election have combined to make the rupee Asia’s worst performer in 2018,” according to an analysis by Bloomberg Intelligence.

As a result, the sovereign bond dropped for the fifth day today, as yields spiked to 7.95 percent—the highest level since June 14.

Also read: How A Weaker Rupee Will Impact India Inc.