Rupee declines 53 paise on US Fed rate hike hint, stimulus reports

Thursday’s decline of 53 paise on a closing basis is the highest one-day drop in the rupee in almost four months with the currency having tested 64.85 on the lower side during the day.

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The rupee has given a year-to-date return of 4.82 per cent which is higher than most of its emerging markets peers.

The rupee on Thursday closed at over 11-week low at 64.80 against the dollar which strengthened following the US Federal Reserve’s decision that it would consider raising the interest rates later this year and would commence the balance sheet normalisation programme in October.

The fall in the currency is believed to have been exacerbated by reports that the government might introduce a fiscal stimulus package which might lead to a widening in the fiscal deficit. The fall of the currency in early trade gathered momentum at the noon when it further plunged 20 paise in 20 minutes following reports of a fiscal stimulus by the government.

“We saw a huge amount of unwinding on Thursday. Exporters who had hedged their positions are unwinding with the fall in the rupee and importers who hadn’t hedged rushed in to hedge their positions to prevent further losses. Towards the end of the day, we believe the Reserve Bank of India might have intervened at around 64.80 levels,” said a currency dealer with a foreign bank.

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Thursday’s decline of 53 paise on a closing basis is the highest one-day drop in the rupee in almost four months with the currency having tested 64.85 on the lower side during the day. The rupee has given a year-to-date return of 4.82 per cent which is higher than most of its emerging markets peers.

The Chinese renminbi has given a YTD return of 5.36 per cent, the South African rand has provided a return of 2.87 per cent while the Indonesian rupiah’s return stands at one percent. The Russian ruble has provided a return of 5.94 per cent while the Malaysian ringgit has given a return of 6.86 per cent.