Mumbai: The Indian rupee plunged to a record low on Thursday in the intra-day trade and closed the session at a 39-month low against the US dollar as persistent selling by overseas investors in the local debt and equity markets and sharp appreciation of dollar against major currencies in the world on expectation of an interest rate hike by the US Federal Reserve dented sentiments.
After hitting an all-time low 68.86 per dollar in the intra-day trade, the rupee finally closed the session at 68.75 a dollar, its lowest level since August 2013.
“I don’t think the rupee would stop at 68.80 level against the US dollar,” said Abhishek Goenka, founder of India Forex Advisors.
“Post Donald Trump’s victory in the US presidential elections, the US 10-year yield inched higher towards 2.40 per cent. On the contrary, Indian yields continued to trend lower as banks are flushed with liquidity.
“India’s 10-year yield is currently trading at 6.26 per cent, a level last seen in 2009 making the arbitrage between India and US extremely unattractive,” Mr Goenka said.
He added that importers and companies having External Commercial Borrowing and Foreign Currency Convertible Bonds liabilities could panic if the local currency breaches 68.80 levels and heads towards 70 per dollar, which seems quite possible in the near term.
Ever since the US presidential election result was announced, foreign portfolio investors have pulled out Rs 17,640.68 crore from the Indian debt market while they offloaded equities worth Rs 15,224.32 crore. The demonetisations of the high value currency note, which is expected to hit the consumption growth and corporate earnings recovery, have forced short-term investors to exit the Indian markets.
During the last three months, the Indian rupee has slumped 2.3 per cent. Malaysian Ringgit is one of the worst performers in the emerging market space that has gone down by over 9 per cent in the last three months while the Chinese Yuan has dropped 3.5 per cent.
“The rupee is expected to depreciate further if US decides to increase the interest rate at its December policy meeting. RBI is selling the dollar to curb the rupee from further depreciation, but global investors are constantly selling their assets hurting the rupee further,” said George Antony, MD, UAE Exchange.
