This article on India Rupee has been written by Aseem Thapliyal and published on Business Today on the 15th of August 2018.
The rupee fell to a fresh record low in opening trade today with investor sentiment affected by a widening trade deficit on the domestic front and the broad rise in the US dollar compared to other Asian peers. The currency fell 42 paise to hit a fresh all time low of 70.32 intra day.
Earlier, it opened 35 paise lower to 70.25 level compared to the US dollar.
Trade deficit widened to a more-than-five-year high of $18.02 billion in July as against a deficit of $11.45 billion during July 2017, the commerce ministry said on Tuesday, driven largely by a surge in oil imports.
Gold imports surged by 40.94 per cent in July to $2.96 billion compared to $2.102 billion in July 2017.
Mustafa Nadeem, CEO at Epic Research said, “Rupee depreciation has its root in the currency war and then followed by Turkish crisis as tensions rise between it and the US. Trade war and the after effects have taken a toll on the most Asian currencies that are from the Developed economies and worst is for emerging economies such as India. The current situation has already been worst for Indian INR as it drifted to above 68 levels on the back of US Treasury bills which is now hitting the 2% mark, crude oil price rise, which is up 40% for the year, and concerns on widening CAD. All this has played out already worse for INR. Turkish crisis further fueled the spark to depreciate it further against the basket of major currencies. This may continue as we still believe the projection for upside for rupee is now at 72.2 while 69.5 technically seems to be base for this upmove.”
The dollar held near a 13-month peak on Thursday as political turmoil in Turkey and concerns about China’s economic health continued to support safe-haven assets and weighed on emerging market currencies.
Indian Rupee: The Momentum is Negative
Anagha Deodhar, analyst at ICICI Securities said, “There are three main factors going against the rupee currently – weakening current account, risk-off sentiment triggered by the Turkish crisis and strong growth in the US. Firstly, India’s current account deficit is set to widen to 2.8% of GDP this year from 1.9% in FY18 primarily due to higher oil prices. The latest trade deficit number (for Jul ’18) came in at a 5-yr high further aggravating concerns about India’s external sector health. Secondly, the Turkish lira crisis is weighing heavily on emerging market economies, especially those with large current account deficits. And finally, growth in the US is strengthening as indicated by high frequency indicators including GDP growth, unemployment numbers, retail sales etc. While two more rate hikes are expected in the US in 2018, the RBI is likely to stay put till Q4FY19. As a result, the potential widening of interest rate differential is also weighing on the rupee. We expect the rupee to remain under pressure in the near term and trade around 70-71/dollar level”
On Tuesday, the rupee hit a record low of 70.1 per dollar, as concerns about Turkey’s economic woes spreading to other emerging markets such as India persisted.
Meanwhile the government is banking on RBI’s foreign exchange reserves which stood at $402.70 billion in the week ended August 3 to stem the rupee fall.
However, the disturbing part is that they have fallen by as much as $1.49 billion over the preceding week largely due to the sharp increase in crude oil prices that have led to an increase in the country’s import bill.
Meanwhile, the Sensex and Nifty fell 31 points and 6 points to trade at 37,826 and 11,428 levels, respectively.
Asian shares fell after deepening worries about global economic growth, particularly in China, set off a rout on Wall Street.
Japan’s Nikkei 225 index fell 0.2 percent to 22,158.75 and the Hang Seng in Hong Kong lost 0.6 percent to 27,155.66. The Shanghai Composite index sank 0.9 percent to 2,699.60. South Korea’s Kospi reopened from a holiday and tumbled 1.0 percent to 2,236.89. Australia’s S&P ASX 200 edged 0.1 percent lower to 6,323.20. Shares fell in Taiwan and Southeast Asia.
Wall Street’s major indexes closed lower on Wednesday, with the S&P 500 down 0.8 percent, its biggest percentage drop since late June, amid disappointing earnings and escalating global trade worries.