The rupee on Monday fell to an all-time low of 77.44 against the U.S. Dollar due to a sell-off in equities amid concerns around weakening global economic growth prospects, outflow of dollar and on fears of further tightening of monetary policy by central banks to counter rising inflation.
The previous closing low for the rupee was 77.09, witnessed on March 07, 2022.
The previous record closing low for the Indian currency was 76.9800/$1 on March 7. So far in the day, the rupee moved in a band of 76.9580-77.5800/$1.
The key factor driving the rupee lower was a surge in the US dollar globally, following the US Federal Reserve’s 50-basis-point rate hike last week and its guidance for more rate hikes in coming months.
A relentless rise in US Treasury yields contributed to the dollar’s strength, with yield on the 10-year US Treasury note climbing around 14 basis points over the last couple of days. The 10-year US yield was last at 3.17 per cent.
At the interbank foreign exchange, the rupee opened sharply strong at 77.27 against the American dollar, and gained more strength to quote 77.24 in early trade, registering a rise of 20 paise from the last close. It was moving in the range of 77.22 to 77.29. In the previous session, the rupee had slumped 54 paise to close at an all-time low of 77.44 against the US dollar.
The dollar index, which gauges the greenback’s strength against a basket of six currencies, slipped 0.07 per cent to 103.58. On the domestic equity market front, the 30-share Sensex was trading 138.53 points or 0.25 per cent higher at 54,609.20, while the broader NSE Nifty gained 34.85 points or 0.21 per cent to 16,336.70.
Global oil benchmark Brent crude futures fell 1.77 per cent to USD 104.06 per barrel. LIC’s mega public offering — India’s largest till date — on Monday closed with nearly 3 times subscription, predominately lapped up by domestic retail and institutional buyers but foreign investor participation remained muted.
Madan Sabnavis, chief economist at Bank of Baroda, said the rupee is still somewhat overvalued compared to its peers. “So, there is some reason for the rupee to depreciate further,” he said, pointing out that the RBI has intervened to the tune of some $15 billion and also in the forwards market. “If the rupee does not move up to around `77/$ in the next couple of days, the 78 level will be tested,” he added.
Since January 2021, the DXY has put on some 14% while the rupee, before Monday’s fall, had lost some 4.5%. Jayesh Mehta, country treasurer, Bank of America, said the rupee has not depreciated as much as its peer currencies in recent months because foreign direct investment flows have been strong and it looked like crude oil prices would not go up beyond a point.
“So, there was a belief the current account deficit would be reined in within 3%. Now, given our dependence on imported crude, the uncertainty on oil prices is worrying, the dollex is less of a concern,” Mehta observed.
One reason experts are not overly concerned about Monday’s dip in the currency, unlike in 2012 and 2013, is that companies do not have a significant unhedged ECB (external commercial borrowings) exposure following the tightening of norms for dollar exposures.
They also point to the RBI’s stash of reserves of close to $600 billion of reserves plus an estimated $40-50 billion in the forward markets appearing adequate.
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