Indian rupee and U.S. dollar banknotes (Photographer: Dhiraj Singh/Bloomberg)

Rupee Tumbles To Record Low, Bond Yield Rises To Multi-Year High

The Indian rupee on Monday fell to a fresh record low of 71.21 against the U.S. dollar as nagging concerns over rising crude oil prices and trade war tensions continued to hurt market sentiment.

The rupee slumped during the late afternoon session despite the government’s efforts to calm frayed investor nerves.

Rupee fell 21 paise against the U.S. dollar on Monday.

The Indian rupee Monday crashed to yet another historic low of Rs 71.21, losing 21 paise at the close against the U.S. dollar. (Bloomberg)
The Indian rupee Monday crashed to yet another historic low of Rs 71.21, losing 21 paise at the close against the U.S. dollar. (Bloomberg)

A sharp rally in global crude prices further dampened overall trading mood. The benchmark Brent crude oil was trading at $78 a barrel.

The domestic currency opened with strong gains largely helped by robust economic growth numbers. However contrary to expectations, overall forex market sentiment suffered a sudden reversal, largely moving in-line with domestic stocks.

Also read: Rupee Weakness Poses a ‘Dilemma’ for India’s Reserve Bank

India’s economy grew at 8.2 percent rate in April-June this year reclaiming its position as the fastest growing major global economy this year.

The central bank has recently pulled several moves to support its currency including its foreign cash reserves along with raising its interest rate twice with the last in August to pre-empt any fresh bout of currency rout as the global trade war escalates.

Heightened risk associated with the swelling current account deficit against the backdrop of surging global crude prices and global turmoil have all contributed to excess volatility. Escalating global trade tensions could prompt further weakening the domestic currency along with exodus of capital.

The 10-year sovereign bond yield curve also jumped substantially to close at a multi-year high of 7.999 percent.
India’s 10-year bond yield high at its peak since December 2014. (Bloomberg)
India’s 10-year bond yield high at its peak since December 2014. (Bloomberg)

The rupee has fallen around 11 percent in 2018—making it the worst-performing currency in Asia.

Fuel prices only added to the problem. Petrol and diesel prices climbed to new highs across the country, driven by a combination of surging global crude prices and falling rupee value, stoking inflationary pressure in the economy.

In the cross currency trade, the rupee remained under pressure against the euro to finish at Rs 82.72 from Rs 82.69 and also weakened against the Japanese yen to settle at Rs 64.10 per 100 yens from Rs 64.07 last Friday. However, the local unit recovered against the British pound to close at Rs 91.65 per pound from Rs 92.12 earlier.

Also read: Biggest India Bond Inflow in Seven Months Fails to Rescue Rupee