The rupee hit a 19-month low on Wednesday losing 37 paise over Tuesday's close to end the session at 68.63.
The rupee hit a 19-month low on Wednesday losing 37 paise over Tuesday’s close to end the session at 68.63. Dealers said the Reserve Bank of India (RBI) stepped in to arrest the fall and support the currency.
The quantum of dollars supplied by the central bank was not immediately known. The US dollar index – Dollex – was hovering around the 94.92 levels compared to 94.15 in the beginning of June.
The weakness in the Indian currency on Wednesday was in sync with the fall in a host of other EM currencies during the day. Noticeably, the Turkish Lira touched its lowest in the last two months or so when it reached 4.62 levels against the dollar on Wednesday. One of the worst hit was the Chinese Yuan or the renminbi.
The Yuan touched a new low since December 2017 during the days trade on Wednesday at 6.59 against the greenback. In 2018 so far, the rupee, Turkish Lira and the Chinese Yuan have given up 6.93%, 17.87% and 1.39% respectively against the greenback.
The last time the rupee had closed at these levels was on November 29, 2016. Another 19 paise loss would take the Indian currency to an all-time closing low of 68.825 seen on August 28, 2013.
Dealers said sales by foreign portfolio investors (FPIs) in the equity and debt markets could further hurt the currency unless exports were strong. Sales by FPIs in the bond markets have hit $1.58 billion in June so far while equity sales have touched $530.94 million.
Anindya Bannerjee, deputy vice president, Kotak Securities believes the US Fed’s focus on monetory policy tightening is bad news for the emerging markets (EM), “The Chinese Yuan has seen a freefall today, during the days trade the yuan saw the lowest levels since December 2017. The ongoing US-China trade war has impacted the yuan a lot and this has resulted in outflows from the market there. Since China is an EM there will be ripple effect on a lot of other EM currencies. There were outflows from the Chinese markets earlier too, it has just gained prominence now. Given it’s a pre-election year in India, the RBI is also aiming at tightening its monetory policy which will impact the rupee,” he explained.
Dealers said the RBI is believed to have sold dollars on Wednesday. They were also concerned the price of crude oil was nearing $77 per barrel. “India is a large importer of oil,” Bannerjee said.
The weakening rupee could prompt foreign investors to offload more bonds market observers said, since otherwise their portfolios would continue to lose value.