Rupee plummeted to a fresh 6-month low of of 65.75 intra-day, breaching the earlier March 23rd low of 65.55, mainly due to heavy foreign fund outflows and month-end dollar demand on Wednesday. The home currency had closed at a six-month low of 65.45 yesterday as forex market participants feared fund outflows from the domestic capital markets. The Indian rupee is reeling under pressure because of the increased buying in the safe-haven assets such as gold and yen and the continuous strengthening of the US dollar against a basket of currencies.
According to PTI reports, FPIs withdrew over Rs 1,915.54 crore on net basis from stock markets yesterday, as per provisional exchange data. Analysts also attribute the fall in the rupee to geopolitical factors such as heightened tensions between US and North Korea.
The rupee depreciation may help revive exports. Government’s top economic policy advisor Rajiv Kumar has said in an interview to BloombergQuint that Rupee should be allowed to depreciate to a point where exports get revived. Giving reference to Prime Minister Narendra Modi’s insistence on domestic substitution to energy imports, Rajiv Kumar said, “I think if you got a depreciated rupee, which made your energy costs higher, you will get both lower consumption and less wastage, but also a nice kick towards producing your own domestic renewables and other sources that you can achieve. I am convinced in my mind. The encouragement to export means greater employment.”
The plummeting in the rupee value comes after it had been trading in the 64-65 range in the last few months, and even hit a high of Rs 63.6 in early August. So far this year, the rupee has gained 4.2%, and even hit a fresh two-month high on August 3rd at Rs 63.6, after trading at 64-65 levels for a long time. US Federal Reserve’s rate hike concerns, India’s falling GDP growth rates, widening of the fiscal deficit are some of the macroeconomic factors dragging the rupee downwards.