Indian rupee dived to a six and a half month low on Friday morning on the news reports that government is planning Rs 40,000 crore fiscal stimulus to the economy to boost exports, support MSMEs, and expand bank credit, even at the cost of letting the fiscal deficit widen a little. The rupee today dropped by 34 paise to a six and a half month low level of 65.15 against the US dollar on frenetic dollar demand from importers and banks. The early losses in domestic equity markets and unabated foreign fund outflows weighed on the rupee.
Yesterday, the rupee sank as much as 0.9%, the most since 18 May, to 64.84 per dollar, before closing down 0.8% at 64.7950, and 10-year bonds declined to a four-month low after the US Federal Reserve left the door open for a rate hike in December. The rupee’s weakness was also on concerns of a widening fiscal deficit after finance minister Arun Jaitley said the government may soon announce measures to revive economic growth.
Global markets were mixed as US Treasury yields spiked after the Fed left interest rates unchanged on Wednesday but signalled it still expects one rate hike by the end of the year despite recent weak US inflation readings. It also lowered its estimated long-term “neutral” interest rate from 3% to 2.75%, reflecting concerns about overall economic vitality. Investors seem to be cautious about prospects for foreign liquidity inflows to India after the Fed begins unwinding a decade of aggressive stimulus. Foreign institutional investors have sold a net Rs 69,095.65 crore of stocks in September so far; they have bought Indian equities worth $6.54 billion (around Rs 42,185 crore today) this year.
Sensex and Nifty opened lower on Friday as most of the Asian stocks fell in the early trade on the possibility of North Korea conducting another hydrogen bomb test, this time in the Pacific Ocean. BSE Sensex lost 31 points to open at 32,339.5 points and NSE Nifty washed off 28 points to open at 10,094.35 points, within minutes of trading both the key equity indices fell drastically. The benchmark Sensex fell as much as 274 points to hit the day’s low of 32,096.02 while the broader Nifty 50 shed 97 points to mark the day’s low of 10,025.2 points.
The dollar index, which tracks the U.S. unit against a basket of six major rivals, fell 0.3 percent to 92.024, still up 0.2 percent for the week and holding well above its more than 2-1/2 year nadir of 91.011 marked on 8 September. On Thursday, European Central Bank President Mario Draghi said monetary policy is not an appropriate tool to address financial imbalances but offered no fresh insight on the central bank’s asset purchase program.