Rupee in free fall on COVID-19 fears; RBI soothes markets

06/02/2020 MUMBAI:: A logo of the Reserve Bank of India (RBI) at the RBI headquarters in Mumbai Photo By. Paul Noronha

06/02/2020 MUMBAI:: A logo of the Reserve Bank of India (RBI) at the RBI headquarters in Mumbai Photo By. Paul Noronha   | Photo Credit: PAUL NORONHA

The rupee fell for the third consecutive session on Tuesday on concerns over the deadly COVID-19 spreading in India amid the central bank stepping in to calm investor sentiment.

The rupee dropped below the 73-a-dollar level even as the equity markets bounced back, snapping a seven-day losing streak.

The Reserve Bank of India (RBI) stepped in to issue a statement saying the central bank was closely monitoring the situation and stood ready to take appropriate action.

The central bank acknowledged that the spillover of the global financial market turmoil in India had been largely contained as there were hopes of coordinated policy action.

Spillover contained

“Globally, financial markets have been experiencing considerable volatility, with the spread of the coronavirus triggering risk-off sentiments and flights to safe haven. Spillovers to financial markets in India have largely been contained. Growing hopes of coordinated policy action to mitigate a broader fallout to economic activity have boosted market sentiment today,” the RBI said.

“The Reserve Bank of India is monitoring global and domestic developments closely and continuously and stands ready to take appropriate actions to ensure orderly functioning of financial markets, maintain market confidence and preserve financial stability,” it added.

The rupee opened stronger at 72.45 a dollar compared to its previous close of 72.76, but weakened after reports of the COVID-19 spreading in India.

A school in Noida was reportedly shut down after a student’s parent tested positive for COVID-19. The Indian currency ended the day at 73.23, down 0.65% from its previous close — a 16-month low.

The spread of the virus, the impact of which is expected to be higher than that of the SARS outbreak in 2003, is likely to affect global trade. The IMF has lowered global GDP growth projections by 10 basis points to 3.2% in 2020.

Impact on exports

Since India and China are major trading partners, a sharp hit to their exports and imports is likely.

“Slowdown in economic activity in China is likely to weigh on exports from India. China’s economic growth is likely to moderate to below 6% in 2020,” said Abheek Barua, chief economist, HDFC Bank.

“Export of commodities like ores (India exports 72% of its total ores to China), organic chemicals, cotton, etc. is likely to get hit should the disruption from the COVID-19 continue for an extended period,” Mr. Barua said.

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Printable version | Aug 12, 2020 4:45:02 AM |

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