Rupee at an all-time low vs US dollar: The Indian rupee on Thursday, 28 June 2018, collapsed to the all-time low value against the US dollar at the foreign exchange market and broke 69 per USD level for the first time in history.
Rupee at an all-time low vs US dollar: The Indian rupee on Thursday, 28 June 2018, collapsed to the all-time low value against the US dollar at the foreign exchange market and broke 69 per USD level for the first time in history. The rupee has been mostly losing its strength against the US dollar since the beginning of February this year, the time when Union Finance Minister Arun Jaitley imposed LTCG on equities and global sell-off started due to escalated volatility in stock markets around the globe.
Rupee to US dollar exchange rate: The rupee plunged as much as 49 paise to an all-time low of 69.10 vs the US dollar at the interbank foreign exchange market in the morning session on Thursday. The rupee value against US dollar on Thursday got depreciated very quickly following the negative global cues and deprived condition of regional Asian currencies. Earlier yesterday, the rupee lost about 37 paise to end at a 19-month low of 68.61 per US dollar. The Reserve Bank of India (RBI) on Wednesday fixed a rupee to US dollar reference rate of 68.5246 and rupee to euro reference rate of 79.8654.
5 key reasons for INR’s depreciation against USD
Crude oil boiling again
A steep rise has been observed in the crude oil prices from late-June 2017 till late-January 2018. Crude oil prices also saw a sharp dent when Brent crude oil plunged to $63 per barrel from a level of $70 per barrel within two weeks from 26 January to 9 February 2018. But since mid-February 2018, crude oil prices have mostly risen with Brent crude oil topping a level of $80 per barrel in May. Recently last week, Brent crude oil prices eased to $73/bbl but resurged to a level nearer to $78/bbl within six days.
Crude oil import bill to rise?
The United States has told all countries including which includes India, to restrict crude oil imports from Iran by 4 November. According to a PTI report, the countries carrying out any transaction with Tehran (capital of Iran) beyond the said timeline are likely to face sanctions as would be “zero” waivers to any country. Iran is a major exporter of crude oil to India after Saudi Arabia and Iraq. According to a Bloomberg report, Iran’s oil exports to India surpassed that of Saudi Arabia’s and the country emerged as the second-biggest oil supplier to India in the month of May. India’s crude oil imports from Iran surged 35% in May to 7.71 lakh barrels a day, Bloomberg reported.
India, which imports over 80% of its oil, is attracted to Iran’s crude largely due to geographic proximity that can save on shipping costs, as well as the favourable financial terms offered by Iran, including the longest credit period among all of India’s suppliers, a Bloomberg report said. Iran has supplied about 18.4 million tonnes of crude oil from April 2017 to January 2018.
Trade war between US and China
For more than three months now, US and China have been involved in heated up trade war as these countries are imposing import tariffs on goods from either of these countries. Both the nations have triggered a trade war situation which is not adaptable for countries like India. Initially, US President Donald Trump imposed tariffs on a number of Chinese goods worth billions following which, in a retaliatory manner, China too imposed tariffs on American products and raised duties on several goods.
“Trade war is leading the markets into period of risk off where prices of all assets are moving lower. US Dollar and Japanese Yen are emerging as beneficiary from trade war. Indian Rupee is already under pressure from high crude oil prices and ongoing trade war could spark another bout of capital outflows,” Bhavik Patel, Senior Technical Analyst, Tradebulls Securities told FE Online.
Fiscal deficit blues
On the back of ballooning crude oil prices, crude oil imports from Iran and renewed trade war tensions, experts are believing that these all may hurt India’s fiscal deficit over the upcoming quarters as India is a net importer of crude oil and also heavily dependent on it. “Weakness in Indian Rupee is expected to persist as it will be difficult to fund the widening current account deficit given the increased return in form of higher US Dollar rates offered by other emerging market debtors,” Bhavik Patel told FE Online.
FPIs (Foreign Portfolio Investors) have emerged as net sellers in the first two months of FY19 and have already sold-off around Rs 14,000 crore worth of equity and debt securities in this month so far. “So far foreign investors have pulled out over Rs 14,500 crore from Indian capital market this month. Adding pressure to Indian Rupee is strong month-end dollar demand from importers and banks,” Bhavik Patel said.