The fall of the currency in early trade gathered momentum at around noon when it further plunged 20 paise in 20 minutes following reports of fiscal stimulus by the government.
The rupee on Thursday closed at over eleven-week lows at 64.80 against the dollar which strengthened following the US Fed’s decision it would consider raising the interest rates later this year and would commence the balance sheet normalisation programme in October. The fall in the currency is believed to have been exacerbated by reports that the government might introduce a fiscal stimulus package of Rs 40,000 crore which might lead to a widening in the fiscal deficit. The fall of the currency in early trade gathered momentum at around noon when it further plunged 20 paise in 20 minutes following reports of fiscal stimulus by the government. “We saw a huge amount of unwinding on Thursday. Exporters who had hedged their positions are unwinding with the fall in Rupee and importers who hadn’t hedged rushed in to hedge their positions to prevent further losses. Towards the end of the day we believe the Reserve Bank of India might have intervened at around 64.80 levels,” said a currency dealer with a foreign bank.
Thursday’s decline of 53 paise on a closing basis is the highest one-day drop in the rupee in almost four months with the currency having tested 64.85 on the lower side during the day. The rupee has given a year-to-date return of 4.82% which is higher than most of its emerging markets peers. The Chinese renminbi has given a YTD return of 5.36%, the South African rand has provided a return of 2.87% while the Indonesian rupiah’s return stands at one percent. The Russian ruble has provided a return of 5.94% while the Malaysian ringitt has given a return of 6.86%.
The rupee’s appreciation so far this year has been supported by considerable foreign portfolio investments into Indian debt and equity to the tune of $27 billion. Dollar weakness earlier had helped push the rupee higher so far prompting the Reserve Bank of India (RBI) to shore-up its forex reserves which has hit a life time high of $400.726 billion. Meanwhile, the 10-year benchmark yield ended 10 basis points higher at 6.68% compared to Wednesday’s close. This is the highest level seen in almost four months.