The rupee on Friday fell by 26 paise to hit a historic low of 71 for the first time against the US currency amid firming crude oil prices, strong month-end demand from oil importers and depreciation of emerging market currencies. While a weakening rupee has made importers and corporates nervous, the Reserve Bank of India did not intervene aggressively, indicating that the central bank is comfortable with the current level of the rupee.
The rupee opened lower at 70.95 a dollar and slipped further to hit its lifetime low of 71 from its previous close of 70.74. The rupee pared some of the losses to touch a day’s high of 70.85 but slumped in late trade to close at its lifetime trading low of 70.955/71.00, showing a loss of 26 paise or 0.37 per cent over the previous close.
“The RBI is intervening very selectively to contain volatility. The RBI is unlikely to intervene aggressive as the rupee is still overvalued and currencies of emerging markets are depreciating sharply. The government also seems to be comfortable even if the rupee depreciates further,” said Rushabh Maru, Research Analyst, Anand Rathi Shares and Stock Brokers.
The rupee has been one of the worst performers among the large emerging market peers, losing over 10 per cent from the start of the year. The fall in the currency value has made imports and overseas travel costlier.
SBI managing director PK Gupta said the rupee has been faring better than many of its peers, including the Turkish, Argentinean and Indonesian currencies. “You need to look at what’s happening globally. Argentina, Indonesia… most of the currencies are losing against the dollar. In fact, the fall of the rupee against the dollar has been much lesser compared to most other currencies. I don’t think the value of the rupee is so much of a concern now. The unit is overvalued in any case. A little bit of depreciation should not impact too much at this stage,” Gupta said.
“On the domestic front, the intensity of the RBI’s intervention has dissipated. While there is complete lack of communication from the RBI, comments from officials from the government and quasi-government agencies appear to give the impression that they support this fall in the rupee’s value in the interests of competitiveness,” HDFC Bank said in a report.
“In situations like this, it is futile to predict the near term exchange rate. Thus in our forecast we have simply put a technical resistance point as the upper bound. What is important though is that we see the depreciation bias and momentum continuing in the near term and this has implications for exporters, importers and borrowers in forex,” it said.
Fearing further fall in the rupee value, corporates have started taking medium-term monthly cover for their overseas payment liabilities. With hedging on the rise, forward premium has also increased.
Meanwhile, the 30-share Sensex fell over 45 points on Friday, extending third session of loss as the September series derivatives contracts started on a somewhat weak note amid the fall in the rupee value. The NSE Nifty, however, edged slightly higher by 3.70 points. Muted global cues after a report that US President Donald Trump was preparing to impose more tariffs on China hurt the trading sentiment, dealers said.