In a sudden and sharp move, the rupee on Wednesday lost 0.8%, plunging below the 83 mark against the dollar to close the session at a historic low of 83.02. The fall of 66 paise in a single day is the steepest in recent times.
While the jump in yields on the benchmark US treasury to over 4% and the rally in the dollar weighed on the rupee, the local trigger was demand from at least two state-owned companies. Dealers said exporters came in to sell dollars towards the end of the session but to what extent the Reserve Bank of India (RBI) participated in the currency markets was not immediately known.
The Indian currency has now lost 2% this month and close to 12% against the dollar in 2022. Much of the fall over the past year has been due to the strengthening of the dollar; while the dollar index started 2022 at levels of 96 and even traded at sub-95 levels, it has been gaining value since March after the outbreak of hostilities between Ukraine and Russia. It is now ruling at 112-113 levels. The yield on the US benchmark bond was 4.08%, a level last seen in July 2008.
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Jayesh Mehta, country treasurer, Bank of America, said the value of the rupee over the course of the next few months would depend on the strength of the dollar and the yields on US treasuries. However, over a longer term the rupee is expected to come back to levels of around 80 to the dollar. Other Asian currencies also weakened on Wednesday, including the offshore Chinese yuan.
Lakshamanan V, senior VP, Federal Bank, said that the sharp and sudden fall in the currency was probably triggered by importer buying being bunched up. The move could be exaggerated, he added, and the rupee should retrace some of the losses.
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While elevated crude oil prices have pressured the local currency markets – India imports more than three-fourths of its oil requirements – prices have tapered off. On Wednesday, Brent was trading at around $91 per barrel.