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Day after biggest 1-day fall in 5 years, rupee hits 70/dollar: 10 points
The rupee has fallen nearly 9% so far this year against the US dollar.Apart from the Turkey crisis, which has led to some selloff in emerging market assets, concerns over current account deficit amid higher oil prices weigh on the rupee.
The rupee (INR) fell to 70.08 per US dollar (USD) at day’s low.
The Indian rupee (INR) hit 70 against the US dollar (USD) for the first time as the Turkey crisis continued to roil emerging market currencies. At the day’s low, the rupee fell to 70.08 per dollar, before closing at 69.89 per dollar. On Monday, the rupee had tumbled 110 paise to close at 69.93 - its biggest single-day fall in five years. The Sensex also rebounded from Monday’s fall and finished 207 points higher at 37,852.
The government today blamed “external factors” for the rupee’s fall
. Economic Affairs Secretary Subhash Chander Garg said external factors may ease going forward. “Rupee is depreciating due to external factors,” he said. There is “nothing at this stage to worry”.
The rupee has been on a downward spiral throughout 2018
after starting the year at 63.67, falling nearly 9% so far this year against the US dollar.
, which was already under pressure from a widening current account deficit and concerns over the fiscal deficit.
3) “The chaos in Turkey has led investors to pull back from asset classes that are considered risky and emerging market currencies have suffered the most,” Religare Broking said in a note.Foreign investors have sold $6.8 million and $5.15 billion in equity and debt markets so far this year, respectively.
A weaker rupee could also make difficult the RBI’s job of keeping inflation in check
as it makes imports costlier, amid higher oil prices. Dollar To Inr Rate Last 10 Days
5) India is the world’s third biggest oil importer and consumer and ships in about 80 per cent of its crude oil needs.
6) The RBI has hiked interest rates twice in two months to check inflationary pressures while also using foreign reserves to check currency volatility.
7) Analysts say that the broad dollar strength, trend in crude oil prices and emerging-market currency movements are key short-term triggers for the rupee. “Broader emerging market currency movement, dollar strength, and trends in crude oil prices will drive the outlook for the rupee in the immediate term,” said Aditi Nayar, principal economist at ICRA Ltd. “The RBI is likely to assess the trend in the rupee vis-a-vis the EM currency pack. If all EM currencies are depreciating, the rupee must weaken to protect export competitiveness.”
8) In a recent report, the IMF had flagged global risks such as high oil prices and trade tensions among the factors weighing on India’s growth outlook.
9) Fear of contagion surfaced on Monday as the Turkish lira extended a two-day slump to about 20%,
spurring a sell-off in emerging market currencies, including the rupee
. Investors cut their exposure to emerging markets as a whole to offset losses in Turkey, or to hedge lira positions, say analysts.
10) But many analysts don’t see the Turkey crisis spreading to other emerging markets. JP Morgan economist David Hensley said that strains in most other emerging markets would be contained. “Negative developments in Turkey will likely be eventually seen, along with Argentina, as isolated given their exceptional external imbalances compared to most EM countries, Dollar To Inr Rate Last 10 Days
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