The rupee tumbled as much as 31 paise to a new all-time low of 68.87 against the dollar on Thursday amid a resurgent US currency in global markets. The outflows from Indian capital markets also weighed on the rupee. The rupee had closed at 68.56 against the dollar on Wednesday. The dollar’s rise has fuelled expectations that the rupee may slip below 70 levels over the next few months. The Sensex fell nearly 200 points today, putting further pressure on the rupee.
The rupee had recorded its previous all-time low of 68.85 against the dollar in August 2013 when the country was suffering from its worst market turmoil since the 1991 balance of payment crisis. At 3:45 pm, the rupee was at 68.71.
Here are the key highlights:
1) The rupee has been hurt by the twin forces of selling of Indian stocks by foreign investors and the dollar’s recent broad rise against other global currencies since Donald Trump’s shock victory earlier this month. The rupee has fallen over 3 per cent since November 9, as the dollar has rallied to near 14-year highs against a basket of six major global currencies.
2) Mr Trump’s win has fuelled expectations that inflation would rise in the US if the president-elect follows through on a pledge to spend big on infrastructure and cut taxes. Strong US economic data has also increased the probability of a rate hike from the US central bank next month. Federal Reserve Chair Janet Yellen has already signalled that the US central bank was on track to raise interest rates soon.
3) This has driven US bond yields sharply higher, making dollar assets attractive and major re-pricing of assets, with investors rushing to buy US stocks and the dollar, while dumping emerging market assets.
4) Foreign investors have sold Indian stocks worth nearly Rs 13,000 crore since November 8, putting further pressure on the rupee. Indian stock markets have also seen a selloff following demonetisation of high currency notes. Many brokerages have lowered their GDP growth forecasts, fearing hit to the Indian economy in the near term.
5) Analysts expect the weakness in the rupee to continue in the near term. “With Trump being the new president, the focus is likley to be on infra push, deregulation and tax cuts. All this means it is good for the US equities and dollar,” says Anindya Banerjee, associate VP for currency derivatives at Kotak Securities. “In 1-2 months, we could see levels of 69.30. Over 7-8 months, we could see the rupee at 70.50-71.”
TS Harihar, founder of HRBV Client Solutions, said the rupee could get closer to the 70 mark against the dollar.