In what can be termed a worst case scenario, the Asian currency, Indian rupee, has been falling down since July 31 and reached 71.56 against the US dollar as of Wednesday. This made the Indian rupee the worst-performing currency in the month of August. In 21 days, it has fallen by 3.9 percent.
The depreciation of Indian rupee against US dollar is because foreign investors are withdrawing from the Indian market. Foreign Portfolio Investors have turned negative and, as per reports, budgetary announcement on tax surcharge is being seen as one of the reasons. Foreign investors pulled out Rs 902.99 crore from Indian equities on Thursday, as per exchange data.
According to Deccan Herald report, Chinese Yuan depreciated by 2.43%, Philippine peso by 2.94%, Korean Wong by 2.34% and Singapore Dollar 1.2%. The worst performing currency against the dollar globally has been South African Rand, that has seen a depreciation 8.48%. The only currency that has increased against the US dollar has been Japanese Yen, which has risen by 1.94% in the past three weeks.
The slump in the Indian currency has become prominent since July 31. The report points out that it is when the Federal Reserve announced a rate cut even though India's forex reserves have been increased to $430 billion for the week ended August 9, against $411.9 billion at the start of the financial year.
"The rate cut was an attempt to ensure that the strengthening US economy did not falter even as inflation remained low. Lowering of interest rates by the Fed revealed a weaker economy which should have made the dollar weaker; but that was not the case. In fact looking at the tendency for the yield curve to get inverted in the USA, the market is looking at a possible recession which is foretold by such a development," Care Ratings noted.
"Indian rupee falls to its lowest level since December 14, 2018, mirroring a sudden drop in Chinese yuan and a fall in domestic equity. The mood of the market changed after the chief economic advisor said no need for stimulus," V K Sharma, Head PCG & Capital Markets Strategy, HDFC Securities, said.
(Inputs from PTI)
