Joining a global meltdown in currencies, the Indian rupee Tuesday morning plunged to a record low of 70.07 against the US dollar. However, the Indian currency recovered later on heavy intervention by the Reserve Bank of India (RBI) and was trading at around 69.84 at around 12.40 IST.
When the rupee hit the 70 level against the dollar for the first time in the history, the RBI sold dollars through public sector banks, preventing a further slide. On Monday, the rupee crashed by Rs 1.08, or 1.57 per cent, to end at a historic low of 69.92/63 against the US currency as the Turkish currency, Lira, plunged, sending global currencies into a tailspin. The rupee which has lost over 7 per cent this year is one of the worst performing emerging market currencies.
“If global currencies show further meltdown, the rupee will also fall further. It could touch 75 in the next 4 or 5 months,” said a forex analyst.
The Sensex, however, ignored the rupee’s fall and gained around 245 points at 37,890 at around 12.40 IST.
“The current drop in the rupee is mainly due to the crisis in Turkey. The dollar index has strengthened beyond 96 levels reflecting its safe-haven status due to the possible domino effect of the Turkey crisis on the other financial institutions. The rupee can see a further dip to 70.25 levels. On the other hand, we could be seeing 69.60 levels if the favourable inflation data is backed by a moderation in the awaited trade deficit figures,” said Salil Datar, CEO & Executive Director, Essel Finance VKC Forex Ltd.
What’s the impact of the rupee’s fall? Importers will be hit because of the rupee’s decline as the cost of getting goods or equipment in to India will increase. When the rupee weakens, importers especially oil companies and other import-intensive companies have to shell out more Indian rupees to buy an equivalent amount of dollars. In other words, a weak rupee can act as a kind of import tax. It will be a double whammy for the oil sector as the rise in crude oil prices and the decline in rupee value will add to retail fuel prices. Margins of oil companies will come under pressure.
On the other hand, exporters stand to benefit from a weak rupee as they get more rupees while converting their dollar export earnings into Indian currency. India’s software exporters, especially, will benefit from the rupee’s decline. This is expected to boost the export sector which has been showing single-digit growth. For FY18, exports grew by 9.78 per cent.