Even as the Indian rupee closed below the 70-mark against the USD dollar first time ever yesterday on a stronger dollar and concerns over trade deficit, experts point out that there could be more pain in the offing. We take a closer look.
Even as the Indian rupee closed below the 70-mark against the USD dollar first time ever yesterday on a stronger dollar and concerns over trade deficit, experts point out that there could be more pain in the offing, forcing RBI to intervene. “On the back of global market turmoil and emerging domestic vulnerabilities, INR can further see new low levels against the dollar from here on unless we see some stability in global FX space on geopolitical front. The central bank is not expected to target any level but will likely intervene to ease volatility in the FX market. However, we do not rule out any preventive policy action or announcement to contain the recent sharp volatility in INR,” Sajal Gupta, Head, forex and rates said in a note.
Interestingly, the rupee slid 26 paise or 0.37 per cent over the previous close to close below the 70-mark at 70.15, forcing India’s central bank RBI to intervene in the market, PTI reported currency dealers as saying. A sharp surge in trade deficit has negatively impacted the Indian rupee. Trade deficit soared to a near five-year high of $18 billion, data released by the commerce ministry on Tuesday showed.
Notably, Indian currency and debt markets are closed on Friday for a local holiday and trading would resume on Monday, said a Reuters report. Taking stock of the current position, finance minister Arun Jaitley said that India’s foreign exchange reserves are comfortable by global standards and sufficient to mitigate any undue volatility in the foreign exchange market.
Interestingly, Barclay’s had earlier projected the currency at 72 by year-end. The median forecast in a Bloomberg survey estimated the rupee at 68.20 by end-December. “The only thing to be cautious about is that people shouldn’t get into a knee-jerk reaction. 69.7 or 70 doesn’t mean anything. The real danger is if people over-react. 70, given the current situation is not a bad place to be in. My worry is that if things start going the other way, and rupee appreciates, India is going to start looking better than other EMs. That could lead to further appreciation, which could be far more damaging,” Pronab Sen, ex- Principal Advisor, Planning Commission told CNBC TV18 in an interview.