Mumbai Capital

Rupee hits 28-month low

he rupee on Thursday hit its lowest mark in more than two years amid a global sell-off that made foreign funds move towards safer investment options. The rupee closed at 67.30 per dollar, as compared to the previous close of 66.85 per dollar. Foreign banks were seen buying dollars for their clients, market participants said.

The rupee is at a 28-month low, with the previous low on September 3, 2013 when it touched 67.73 per dollar, according to Bloomberg data. In 2016, the currency has already weakened by 1.7 per cent with the dollar strengthening against all major currencies.

Sugandha Sachdeva, currency strategist, Religare Securities, said, “The Indian rupee has slumped on the back of persistent worries over the Chinese economy and the devaluation of the yuan, because of which we have seen a sharp sell-off in global equities in the last few days. This has led to lot of concerns regarding outflows from the emerging market assets, there by putting pressure on the Indian rupee,”

According to dealers, State-run banks were seen selling dollars on behalf of the Reserve Bank of India (RBI) but were unable to reverse the trend.

“The central bank’s intention was not to force it to strengthen but to ensure that it doesn’t weaken much, which could have created excess volatility,” said a dealer with a State-run bank, adding that RBI may have intervened to the tune of $600 million on Thursday.

In November, net intervention by RBI in the spot market was $15 million but the central bank has bought and sold close to $3 billion in November. It has also intervened in the currency future markets in November, data showed. The net transaction in the futures segment is nil as RBI purchased and sold $2.4 billion each.

Siddhartha Sanyal, India Economist, Barclays, said, “The weakening of the INR against the dollar to a great extent reflects a general strengthening in the dollar and poor financial market sentiment globally. India’s external sector per se stands on a decent footing and the BoP remains set to record a sizeable surplus in 2016. Even though we expect the INR to weaken gradually against the USD in the coming months, the INR will likely continue to outperform EM peers.”

Overseas investors were net sellers ($174 million) this week till January 13 in addition to $383 million net sold last week. Going ahead, since the outlook for the global economy is still uncertain, the dollar is expected to strengthen against all major currencies. However, the currency is not expected to go close to its all-time low of 68.85/$, recorded on August 28, 2013.

“The domestic unit was supported by the 67 mark against the dollar for a pretty long time, which was acting as both a psychological and threshold support level. Dollar purchases by foreign banks for their clients have also led to losses in the rupee,” Ms Sachdeva said. She added that the trajectory for the rupee is going to be slightly negative in coming days as it has pierced the crucial 67 mark. “We are looking at the near-term range of 66.70 to 67.70 against the dollar,” she said.



Though we expect the INR to weaken in coming months, it will outperform EM peers

Siddhartha SanyalIndia Economist, Barclays





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Printable version | Jan 24, 2021 9:47:06 AM | https://www.thehindu.com/news/cities/mumbai/business/Rupee-hits-28-month-low/article14000444.ece

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