The Rupee opened 10 paise stronger at 65.35 against US dollar, but soon plummeted to 65.55, a level last seen in late March. This is the fifth consecutive session where the rupee tumbled to hit fresh 6 month lows. Yesterday, rupee closed at a fresh 6-month low Rs 65.45, versus yesterday’s closing of Rs 65.12, 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. Further, analysts also attribute the fall in the rupee to outflows from local equity and debt markets on the fears of fiscal slippages and heightened tensions between US and North Korea. Since August, foreign institutional investors (FIIs) have sold nearly $2.4 billion in equities.
In an interview to ET Now, Jamal Mecklai, CEO, Mecklai Financial Services said, after Rupee hit a fresh intraday low of Rs 65.38 against US dollar, “ Several things happened together. One is the fact that the Fed said that are going to start unwinding their years of QE. Now, interestingly, the US markets were not affected by it. However, our markets were affected, and rupee and a lot of currencies were affected.”
Heavy demand for the American currency from importers and banks, has also played a role in rupee’s weakening. Heavy buying of the US currency and concerns on the macroeconomic front, have together led to the rupee weakening. 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.
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. “For a long time, people were thinking: Oh my God! How much longer can the rupee stay so strong. I think it sort of reached a cracking point end of last week,” said Jamal Mecklai in the same interview. There is an increased speculation over a possible fiscal stimulus which can go above Rs 40,000 crore after six successive quarters of a dip in the economic growth, which may further put the home currency under pressure.