Yuan impact: Rupee plunges to two-year low

Other emerging market currencies also hammered on fears of ‘currency war’, Sensex falls 354 points.

Even as China’s yuan hit a four-year low on Wednesday, falling for a second day after authorities devalued it, the rupee plunged by 59 paise to nearly 2-year low at 64.78 against the US dollar on sustained demand for the US currency and hammering in other global currencies.

The BSE Sensex also tumbled almost 354 points to settle at 27,512.26, its lowest closing in two weeks, due to the yuan impact and concern over delay in clearing important Bills in Parliament. Other emerging market currencies also came under hammering. The Indonesian rupiah led the decline, falling 1.7 per cent against the US dollar to its lowest level since July 1998, while the Malaysian ringgit slid 1.4 per cent to its weakest since September 1998. The Singapore dollar, Taiwan dollar and Philippine peso, meanwhile, all touched five-year lows.

The rupee hit an intra-day low of 64.94 before ending at a two-year low of 64.78. With this, the rupee has tumbled by 104 paise, or 1.63 per cent, in last six trading days.

The devaluation had sparked fears of a global currency war and accusations that Beijing was unfairly supporting its exporters. Spot yuan in China dropped to as low as 6.4510 per dollar, its weakest since August 2011, after the central bank set its daily midpoint reference at 6.3306, even weaker than Tuesday’s devaluation. In the global market, the US dollar hit a fresh two-month high against the Japanese yen while resource-related currencies such as the Australian dollar fell sharply against the US dollar. The central bank in China, which had described the devaluation as a one-off step to make the yuan more responsive to market forces, sought to reassure markets on Wednesday that it was not embarking on a steady depreciation.

Anindya Banerjee, associate vice president, Kotak Securities, said, “The rupee is facing competitive devaluation pressure due to the devaluation of Chinese yuan. The rupee, which has been an out performer over the past 18 months had become a pain trade for exporters and economy. At a time when Asian and other global majors are looking to depreciate their currency to safeguard domestic tradable sectors and export market, India, with a strong currency, was at an economic disadvantage.” Global economy is slowing and so is the global trade. “At such a time, tail wind in the form of weak currency can be helpful. As a result, we expect the RBI to slowly shift the band of intervention from 63-64 to now 63.70 and 65.50,” he said.