Rising oil, capital outflows, widening CAD pose risks to currency
Mumbai : The rupee’s woeful run continued for the seventh straight session on Thursday as worries on macroeconomic economic front and rout in emerging market currencies pulled the Indian unit below the historic 72-level for the first time ever.
The domestic currency plunged to 72.11 to the dollar at one point during the day’s trade before closing at 71.99, showing a steep 24 paise fall.
The rupee has been under immense pressure due to a host of reasons including soaring crude oil prices, sustained foreign fund outflows and widening current account deficit. Besides, escalation in global trade war tiff too weighed on sentiments.
But primarily it was weakness in emerging market currencies overseas which boosted the dollar, resulting in a duress for the domestic currency.
“Markets are expecting some support from policy makers in terms of a separate window for OMCs and more relaxation on buyers credit and ECB guidelines. RBI intervened at various levels but was not very effective to contain the (rupee) movement,” Sajal Gupta, Head Forex and Rates, Edelweiss Securities, said.
After a positive start in early trade, the beleaguered rupee crumbled to breach the 72-mark for the first time ever. It had opened higher by 13 paise at 71.62 per dollar. The domestic currency has been caught in a free fall for last few sessions against the backdrop of surging global oil prices and consistent widening of trade deficit.
However, RBI’s intervention operations to contain volatility in the forex market remained elusive.
The Indian rupee continues to be worst performer among Asian currencies, having weakened by almost 13 per cent since the beginning of the year.
Adding to pressure point, the 10-year G-Sec yield maintained its steady uptrend on fear of more rate hikes and touched multi-year high of 8.06 per cent.
International oil price, which is rallying on the back of geo-political tensions and supply woes, may continue to remain a near-term concern for India’s trade balance, leading to further erosion in the rupee value.
India’s current account deficit (CAD) has been deteriorating since the last fiscal. The brewing crisis has seen in a number of emerging market currencies — mostly with deep current account deficits have taken a severe hammering in the recent wave of fear selling.
