The rupee extended its losses and slumped 60 paise to close at a record low of 77.50 (provisional) against the US dollar on Monday, pressured by the strength of the American currency overseas and unabated foreign fund outflows.
At the interbank foreign exchange market, the rupee opened lower at 77.17 against the greenback and finally settled for the day at 77.50, down 60 paise over its previous close.
During the trading session, the rupee touched its lifetime low of 77.52.
On Friday, the rupee had slumped 55 paise to close at 76.90.
In the last two trading sessions, the rupee has lost 115 paise against the greenback.
Why is rupee plunging?
Risk appetite weakens
Forex traders said risk appetite has weakened amid mounting concerns about inflation that may trigger more aggressive rate hikes by global central banks. Foreign institutional investors remained net sellers in the capital market on Friday, as they offloaded shares worth Rs 5,517.08 crore, as per stock exchange data.
Elevated crude prices and rising domestic inflation, well above RBI's upper band, might prompt further FII selling from domestic securities
Impact of rupee's fall
Gold prices and Re value inversely proportional
Gold prices in India and the Indian Rupee value against the US Dollar are inversely proportional. If the Indian Rupee appreciates against the US Dollar the Indian gold price decreases and vice versa. To buy or not to buy gold should not be dependent only on the Indian Rupee appreciation/depreciation, said Ravindra Rao, CMT, EPAT, VP- Head Commodity Research at Kotak Securities
In the current scenario other factors like inflation, geopolitical tensions and global economic uncertainty are playing a pivotal role. But yes, when there are huge swings in Indian Rupee value against the US dollar some impact can be seen on domestic gold prices.
Winners and losers of weak rupee
Winners are the exporters and the domestic tourism sector.
Losers are importers, corporates with unhedged dollar loans and houeholds facing increased inflation from weaker rupee, said Anindya Banerjee from Kotak Securities.
Tough times for India Inc
Borrowings in foreign currency will become expensive. Importers will benefit, while exporters to be hit with weakening rupee. With foreign currency fetching more INR, exporters benefit with more INR against the dollar while the importer will have to pay more INR against foreign currency
Good news for NRIs
Those remitting money home, will get more INR against foreign currency
Fuel prices to go high
Rupee at a record low will impacted prices of crude oil which India imports. Subsequently, fuel prices will go up. The cascading impact will be felt on transportation
RBI will be forced to increase interest rates
With a rapid decline in the value of Indian rupee RBI will be forced to increase interest rates. Rohit Arora, CEO & Co-Founder, Biz2Credit and Biz2X said, the decline in currency will make inflation even worse as oil companies will be forced to increase the oil prices. Also the upcoming quantitative tightening by federal reserve will tighten the dollar liquidity which will put further pressure on Indian rupee.
Moreover, increasing interest rates will make local debt more expensive which will impact real estate markets also in a big way.
Equity markets witness sharp sell-off
''Indian Rupee spot plunged to record lows, tracking weakness in Asian peers amid a stronger dollar index and surging treasury yields in the US. Equity markets witnessed sharp sell-off as real rates in the US turned positive and investors turned risk-averse evaluating the need for a higher rate hike to tame the inflation going forward,'' said Royce Vargheese Joseph - Research Analyst - Currency and Energy, Anand Rathi Shares and Stock Brokers.
Joseph further said ''elevated crude prices and rising domestic inflation, well above RBI's upper band, might prompt further FII selling from domestic securities. Meanwhile, RBI's off-cycle meeting on 4th May did little to strengthen the Rupee. Going forward, we might see the rupee spot weakening towards 77.8 levels.'' T
The dollar index, which gauges the greenback's strength against a basket of six currencies, was trading 0.33 percent higher at 104, tracking rising US yields amid fears about higher interest rates.
Crude futures fall
Global oil benchmark Brent crude futures fell 1.68 percent to USD 110.50 per barrel.
The 30-share BSE Sensex ended 364.91 points or 0.67 percent lower at 54,470.67, while the broader NSE Nifty fell 109.40 points or 0.67 percent to 16,301.85.
Foreign institutional investors remained net sellers in the capital market on Friday, as they offloaded shares worth Rs 5,517.08 crore, as per stock exchange data.
