The rupee on Thursday slipped to a new low of Rs 68.8650 against the dollar in intra-day trade before recovering to end the session at 68.7475, weakened by the rising strength of the greenback. The currency had last hit a low of 68.8450 on August 28, 2013. The Reserve Bank of India (RBI) is believed to intervened in the currency market to sell dollars, though this was unconfirmed.
The rupee has also lost some value because foreign investors continue to sell both stocks and bonds in the Indian market — in November so far, they have offloaded stocks worth $1.9 billion and bonds valued at $2 billion. The Indian currency has lost 2.9% in November, but has outperformed most currencies.
The last reading of the real effective exchange rate ) of the rupee against a basket of 36 currencies was 115 points. “The reading has been at 110-112 for some time now so the over-valuation would be in the region of 3%,” a senior economist explained.
Forex expert AW Rajwade noted that the drop in the value of the rupee was a good thing for the domestic economy. “The rupee needs to fall much much more, it is overvalued,” he observed. “Our trade deficit is still $140-150 billion despite the sharp fall in oil prices and I don’t think this fall is enough to restore competitiveness.”
The immediate target for the rupee would be 69 per dollar in the absence of aggressive intervention by the RBI, Madan Sabnavis, chief economist, CARE, wrote in a note.
Jayesh Mehta, country treasurer, Bank of America, pointed out that the Indian currency had reacted to the strength of the dollar and the movement would continue to track the dollar. “While the rupee may depreciate, it should outperform other currencies,” Mehta said.
The Bloomberg Dollar Spot Index, which tracks the currency against 10 major peers, held gains after rising 0.6% on Wednesday, when it reached the strongest level since at least 2005. Odds for a rate increase at the US central bank’s December 13-14 meeting have reached 100%, according to Bloomberg calculations based on futures.
Bloomberg reported HDFC Bank, the top rupee forecaster based on Bloomberg’s quarterly rankings, doesn’t see the losses sustaining and predicts a recovery to 68.50 by the end of the year, according to Tushar Arora, senior economist for treasury at the lender.
The agency reported emerging markets have sold off this month as speculation mounts that US president-elect Donald Trump’s reflationary policies will mean a quicker pace of monetary tightening by the Federal Reserve.
Concern that he will take a more protectionist approach to trade has also weighed on developing-nation assets. The Indian currency’s 2.9% November decline compares with a 6% loss for Malaysia’s ringgit, the worst in emerging Asia, and a 3.8% drop in Indonesia’s rupiah. Taiwan’s dollar has fallen 1.1%, the least in the region, while China’s yuan has weakened 2.1%.