Soaring crude oil prices on Wednesday roiled the financial markets, with the rupee plunging 43 paise to breach the historic low of 73 level amid worries over capital outflows and widening current account deficit. The falling rupee also sent the Sensex plunging by over 550 points to slip below the 36,000-mark on heavy selling in information technology (IT), auto and telecom stocks.
The rupee closed at a record low of 73.34, down by 43 paise or 0.59 per cent at the interbank foreign exchange. In intra-day trade, the rupee had crashed to its all-time low of 73.42 per dollar as crude oil prices breached the $85 per barrel mark, leading to huge outflows of cash. Investors remained concerned over sustained foreign capital outflows and soaring crude oil prices. After breaching the $85 per barrel level, the benchmark Brent crude stayed near four-year high levels at $84.86 per barrel. Further, rising US interest rates and bond yields have encouraged investors to pull out funds from emerging markets to pocket better returns.
Abhijeet Dey, senior fund manager, BNP Paribas Mutual Fund, said, “The sentiment in the markets continued to be weak after the rupee dropped to a new low amid sustained foreign fund outflows and surging crude oil prices. The rupee hit a record low of 73.42 against the dollar in early deals amid worries that surging oil prices will stoke inflationary pressures and widen India’s current and trade deficits. Investors were also cautious ahead of the three-day RBI policy review meet.”
After a weak start, the Sensex plummeted below the 36,000-mark to hit a low of 35,911.82 and finally settled 550.51 points, or 1.51 per cent, down at 35,975.63. The gauge had gained 299 points in the previous session on Monday after the RBI announced measures to shore up liquidity. The NSE Nifty also stayed in the negative terrain through the session and hit a low of 10,843.75 and ended 150.05 points, or 1.36 per cent, lower at 10,858.25. Investor wealth, or the market capitalisation, plunged Rs 171,287 crore to Rs 143,71,351 crore.
“The market cracked as the rupee hit a new low due to increase in oil prices and concern over balance of payment,” said Vinod Nair, Head of Research, Geojit Financial Services. “Despite the government’s plan to cut borrowing in H2FY19, yields continued to increase due to rate hike expectation from the RBI. The sentiment for equity has turned tepid given heightened volatility in the domestic and global financial markets,” he said. The outcome of RBI monetary policy, which is scheduled on Friday, will provide further direction to the markets. The market is expecting a 25 basis points hike in the key policy rate — repo rate.
Suresh Prabhu to hold key meet today
New Delhi: Commerce and Industry Minister Suresh Prabhu will chair a crucial inter-ministerial meeting on Thursday to discuss how best to reduce imports without resorting to another round of tariff hike, and contain the current account deficit that has exerted pressure on the rupee. Prabhu will meet senior officials of the ministries of finance, industry, petroleum, steel, pharma, coal and electronics and IT.
“The discussion will also centre around how to substitute imports through higher local production,” said a senior government official. —FE
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