RBI steps in as rupee hits record low

More weakness:Economists expect the rupee to remain under pressure in the near term amid high oil prices.P. V. Sivakumar  

The rupee extended its losing streak for a fourth straight session, breaching the 69-a-dollar mark for the first time ever in early trade on Thursday before the central bank intervened by selling dollars through state-run banks, curbing volatility in the foreign exchange market and helping the local currency trim its losses.

The rupee, which hit an an intraday low of 69.09, closed at 68.79. The currency’s previous record low was 68.87 reached on November 24, 2016.

“The Reserve Bank of India is said to have intervened to stop the sharp fall in the rupee against the dollar,” HDFC Bank wrote in a note. “It is estimated to have sold dollars about $700-800 million through state-owned banks. We expect the RBI to intervene aggressively at 69.0 levels to support the rupee,” it added.

Climbing crude oil prices, which would fan inflation and widen the current account deficit, fears of a looming global trade war and the rising U.S. interest rates have combined to exacerbate outflows from emerging markets and impacted the rupee. The Indian currency has depreciated more than 7% this year, making it the worst performing Asian currency in the period.

Currency traders expect the rupee will remain under pressure in the near term as oil prices continue to stay high and capital outflows from the emerging markets continue.

“The outflow by foreign investors and the hardening of oil prices have impacted the rupee,” said U.R. Bhat, managing director, Dalton Capital Advisors India.

‘Fairly priced’

“However, I feel that the rupee is fairly priced at the current levels. It has been holding steady for almost a year. Most of the other currencies have depreciated against the dollar and so the correction in the rupee is not completely negative as such,” he added.

While the country’s $413 billion foreign exchange reserves acts as a cushion, the pile has shrunk in eight of the nine weeks to June 15 as the central bank intervenes in the currency market to smooth volatility. The RBI has said that it does not target any specific level for the currency and only intervenes to curb volatility.

The weak sentiment spilled onto the bonds and equity markets as the benchmark 10-year yield rose 6 basis point to 7.94% and the the 30-share BSE Sensex lost 179.47 points to close at 35,037.64 while the broader Nifty ended at 10,589.10, down 82.30 points.

Foreign investors have been net sellers at Rs. 40,439 crore in the debt segment till date this year. In the equity market, overseas investors have been net sellers at Rs. 5,753 crore in 2018.

Oil minister Dharmendra Pradhan said India could not remain insulated in a globalised economy.

“OPEC’s decision to increase production by 1 million barrels per day from July 1 will start having its impact. Strong dollar and high crude oil prices are sentimental and have market driven impact... It’s a matter of concern but no commodity can remain stagnant,” he said.