Economy

Indian rupee hits all-time low against U.S. dollar

Indian rupee hits all-time low against U.S. dollar

The Indian currency weakened to 68.9100 per USA dollar Thursday, past its previous record of 68.8650 reached in November 2016.

Wider current account deficit: Oil is not the only imported commodity that will be impacted by a weakening rupee.

"The RBI has been effectively managing (the rupee) over the years, and they do have ample firepower to manage sharp falls".

Mad rush for dollar was witnessed as importers see further erosion in the rupee value even as it was a field day for speculative traders before the RBI came in strongly, pumping million into the market to salvage the rupee. The stronger dollar and expectations of higher U.S. interest rates were also major factors in the rupee's fall.

India's assets are caught in a vicious downward spiral, where capital outflows hurt the currency, which then further deter investments.

India is the world's fastest-growing large economy in recent quarters, but the continued climb of oil prices could change that, so many investors are lowering their exposure to its currency.

PE and FII exits to suffer: Private equity players and foreign equity investors looking to score handsome exits could feel the heat as the effective dollar-denominated returns on their investments may go down with the rupee's depreciation.

This would mean a hit on the country's current account deficit.

Highly volatile local equities in the midst of option expiry along with overwhelmingly bullish dollar versus major currencies also weighed on the trading front.

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The rupee has just hit a new all-time low.

India is a massive importer of oil, securing more than two-thirds of its needs from overseas.

The worldwide oil benchmark Brent surged to $77.33 per barrel on Thursday.

Oil prices have been rallying for much of 2018 on tightening market conditions due to record demand and voluntary supply cuts led by the Middle East-dominated producer cartel of the Organization of the Petroleum Exporting Countries (OPEC).

The Reserve Bank of India (RBI) estimated in its monetary policy report in April that for every 5% fall in rupee, retail inflation will increase by 20 basis points.

The US Federal Reserve was the first to initiate this process by scaling down its QE (quantitative easing) programme and starting to increase interest rates in the US. However, the settlement takes place in dollars with the rupee rates in India used as a reference.

The local unit, however staged a rebound against the pound sterling to end at 90.05 per pound from 90.45.

The rupee's fall, however, is expected to help exporters, though currency moves in other trading partners will also have an impact, especially with the Chinese yuan in retreat. The rupee has shed 7.7 per cent this year, making it the worst performing currency in Asia, followed closely by the Philippine peso.

"For as long as buying the dollar continues to be the trend of the [currency] market, there is very little emerging markets can do to prevent weakness", added Ahmad.


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