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This is an archive article published on December 11, 2021
Rupee drops to 75.78 against USD on FPI outflow, carry trade unwinding
🔴 The currency pared some of the losses in the closing session to end at 75.78, its lowest closing level since June 22, 2020. The domestic currency lost 66 paise or 0.88 per cent against the dollar during the week.
The currency pared some of the losses in the closing session to end at 75.78, its lowest closing level since June 22, 2020, amid concerns over the impact of the new Covid variant on the economy. (Representational)
The rupee on Friday fell by another 18 paise to close at a nearly 18-month low of 75.78 against the US dollar on sustained foreign fund outflows and carry-trade unwinding. The rupee opened lower at 75.65 a dollar and later plunged to the day’s low of 75.85 in line with a lacklustre trend in the equity markets.
The currency pared some of the losses in the closing session to end at 75.78, its lowest closing level since June 22, 2020, amid concerns over the impact of the new Covid variant on the economy. The domestic currency lost 66 paise or 0.88 per cent against the dollar during the week.
If foreign portfolio investor (FPI) outflows continue, the rupee is likely to fall below 76 level. FPIs have pulled out over Rs 80,000 crore since October this year. They had sold stocks worth over Rs 16,000 crore in December.
“The US Federal Reserve is scheduled to hold its final policy meeting of the year next week, where a faster removal of its policy accommodation is widely anticipated,” IFA Global said. This can trigger more FPI outflows.
Anindya Banerjee, DVP, Kotak Securities, said, “Apart from FPI selling, there are other factors that are triggering the unwinding of short USD-rupee trades or carry trades. They are divergent monetary policy approaches between the RBI and US Fed.” Inflation data will be released next week.
“We expect CPI inflation to top the 5 per cent mark and WPI to print north of 12 per cent. With RBI staying dovish this can add further pressure on the rupee due to negative real rates (interest rate – inflation),” Banerjee said.
However, it is to be seen whether the RBI will intervene, analysts said.
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