Rising crude oil prices, global trade spat take toll on currency
Mumbai : The rupee on Tuesday slid further 47 paise to settle at a record low of 72.98 against the US greenback due to surging crude oil prices and escalating trade war worries.
Panic dollar demand from importers and speculative traders sent the home currency sinking to a historic low of 72.99 in late afternoon deals with very little chance of RBI intervention.
A sharp spike in international crude oil prices weighed on the trading front towards the tail-end session even as the US dollar fell to seven-week lows after Donald Trump announced fresh 10 per cent tariffs on Chinese imports.
US President Donald Trump on Monday night announced to impose additional 10 per cent duties on Chinese imports worth $200 billion.
Benchmark Brent crude futures were up $1.14 a barrel to $79.19 a barrel, after hitting a high of $79.37 in early Asian trade.
Since Monday, the rupee has plunged by 114 paise or more than 1.5 per cent as trade war concerns resurfaced and crude oil rebounded. The stubbornly high global crude oil prices are opening up a can of worms to heightened inflation risks and likely to disrupt government’s fiscal maths along with deteriorating global financial conditions.
Considering that India is a net importer of crude oil, the impact of this imported inflation is expected to be significant. The benchmark 10-year sovereign yield also spiked to 8.14 per cent.
At the inter-bank foreign exchange (forex) market, the rupee opened weak at 72.51 against Monday’s close of 72.55 on sustained dollar demand. However, overcoming the initial volatility, the local unit rebounded to hit a session high of 72.35 before taking a big reversal.
Foreign investors withdrew Rs 1,143.73 crore on a net basis from capital markets Tuesday, provisional exchange data showed.
‘Real’ depreciation only 6-7%: IMF
MUMBAI: The Indian rupee has ‘effectively’ depreciated only 6-7 per cent this year after adjusting it to inflation, almost half of the actual drop in the value of the currency this year, according to the International Monetary Fund (IMF). The IMF, however, warned that the rupee depreciation would jack up the prices of imported goods such as oil and petroleum products, potentially putting an upward pressure on inflation. IMF spokesperson Gerry Rice said the currencies of many of India’s trading partners, including those in the emerging markets, too have depreciated against the dollar. “As a result, so far this year the real effective depreciation of the Indian rupee compared to December 2017, by our estimates, is between six and seven per cent,” Rice said.
The real effective exchange rate (REER) is the weighted average of a country’s currency in relation to an index or basket of other major currencies, adjusted for the effects of inflation.
The Indian currency has since the beginning of the year lost almost 13 per cent in value vis a vis the US dollar.
Observing that India is a relatively closed economy, he said the contribution of the net exports to growth in April to June quarter was again stronger than expected and the real depreciation of the rupee can be expected to reinforce this trend.
Market rout continues
MUMBAI: The BSE benchmark Sensex extended losses for the second session on Tuesday by plummeting 295 points to close at an over one-month low of 37,291 owing to hectic selling in financial and auto stocks amid escalating US-China trade tariff tensions and worsening rupee woes.
The broader NSE Nifty too fell over 98 points to crack below the 11,300-mark. Besides, rising crude oil prices further dampened investors’ mood. The domestic currency was trading lower by 27 paise at 72.78 (intra-day) against the US dollar in late afternoon deals. The 30-share Sensex opened Tuesday on a somewhat better note at 37,660.19 and advanced to touch a high of 37,745.44 but later turned choppy and hit a low of 37,242.85 as selling pressure gathered momentum towards the fag-end, before settling 294.84 points, or 0.78 per cent, down at 37,290.67. This was the lowest closing since August 2 when it had settled at 37,165.16.
The 30-scrip gauge had lost 505.13 points Monday.
The 50-share NSE Nifty Tuesday plunged 98.65 points, or 0.87 per cent, to end at 11,278.90.
During the session, it moved between 11,411.45 and 11,268.95.
Domestic institutional investors (DIIs) sold shares worth Rs 180.36 crore, while foreign portfolio investors (FPIs) also offloaded shares to the tune of Rs 106.54 crore Monday, provisional data showed.
“In the near term, we continue to maintain a cautious stance on the markets as volatility and choppiness is likely to remain high led by uncertain global cues, crude oil price movement, depreciating rupee (vs dollar) and muted domestic sentiments. However any further correction at this juncture should be considered as a healthy buying opportunity for investors in quality companies with strong financials and bright outlook,” an analyst commented.
