Currency plumbs new depths
The rupee on Monday crashed below the 72-mark to end at a new low of 72.45 against the dollar on growing fears of contagion from an emerging market rout and the escalation of a global trade war.
- Published 11.09.18
Mumbai: The rupee on Monday crashed below the 72-mark to end at a new low of 72.45 against the dollar on growing fears of contagion from an emerging market rout and the escalation of a global trade war.
Heavy speculative dollar demand along with panic among importers sent the domestic currency tumbling by a sharp 94 paise to hit a historic low of 72.67 in mid-morning trade, triggering the central bank's intervention to defend the currency. It finished the day 72 paise lower against the dollar - its biggest one-day crash since August 13.
The rupee's decline was also triggered by data from the US released on Friday, which showed that the economy added 201,000 jobs in August and the average hourly earnings rose 2.9 per cent.
Both these numbers were better than expected, indicating that the US economy was doing well and raising prospects of more interest rates hikes by the US Federal Reserve.
Adding to the stress, President Trump had announced that the US was considering another $267 billion in tariffs on Chinese imports.
Last Friday, the rupee had staged an impressive rally against the greenback on heavy intervention by the Reserve Bank of India.
Though the central bank was seen selling dollars via state-run banks even on Monday, market circles said the sales were not strong enough for the rupee to stage a major recovery amid panic buying of dollars by importers.
Moreover, lingering worries over the current account deficit (CAD) continued to hurt the currency even as the first-quarter CAD at 2.4 per cent of the GDP, or $15.8 billion, was not as bad as feared by some.
While the markets are now watching what action the central bank or the government would take, experts fear the rupee could breach the 73-level.
"We expect the rupee to continue to feel the pain in the short term and intervention could restrict the pace but bias for the rupee is still negative. The rupee, in the short term, could test levels of 73.20 and only a break above 72.15 could negate the view for short-term weakness," said Gaurang Somaiya of Motilal Oswal Financial Services.