Indian rupee falls to record low vs US dollar
The Indian rupee breached the crucial 77 mark against the US dollar to plummet to a lifetime low Monday as crude oil prices leapt to their highest since the 2008 global financial crisis, stoking concerns that a widening current account gap and surging inflationary expectations would prompt overseas funds to sell more of Indian financial assets.
The Reserve Bank of India (RBI) is estimated to have sold up to $1.5 billion in the spot market to help arrest further losses in the rupee, reports the Economic Times.
Two mid-sized Indian state-owned banks were reportedly selling dollars to prevent the rupee's rout after Brent crude raced to nearly $140 a barrel. The rupee eventually lost 1.05% to the dollar, closing at 76.97 Monday. The local unit had dropped to 77.11 during the trading session, showed data from the Clearing Corporation of India.
Keep updated, follow The Business Standard's Google news channel
"The rupee entered an uncharted territory, touching record low levels," said Bhaskar Panda, executive vice president at HDFC Bank.
"Rising crude in the aftermath of the Russia-Ukraine conflict is stoking concerns, potentially changing India's fiscal math as imports become dearer," he added.
The one-month Bloomberg Implied Volatility Index surged 149 basis points to 8.74%, its highest level since May 11, 2020.
"The rupee will likely remain under pressure as long as crude oil prices keep rising," said Ashhish Vaidya, managing director at DBS India.
"The risk-off sentiment is driving investors away from the emerging markets. Local fiscal worries would also make monetary policy-making tough," he added.
Global crude oil prices hit $139 a barrel, potentially ballooning India's import bills, as overseas shipments make up three-fourths of local motor-fuel consumption. A weakening rupee further increases inflationary expectations.
To be sure, some dealers expect the dust to settle rather soon.
"Intense RBI intervention, being felt in the currency market, is helping suck out excess rupee liquidity," said Anindya Banerjee, currency analyst at Kotak Securities; adding: "Mounting pressure on the rupee could upset India's fiscal math, but it is expected to calm down within a week or so."
Foreign portfolio investors (FPIs) sold about $1 billion in local equities, provisional trade data for the day showed.
They have exited a net of $12.3 billion in local investments, including debt and equities, this calendar year.
Of this, about $8.5 billion went out in February and the first seven days of March, according to NSDL, a depository. Separately, uncertainty over the initial share sale of Life Insurance Corp. could worsen the fiscal math, and the government may end up borrowing more in the last two weeks of the month.
That could drive yields even higher. The benchmark yield has surged 19 basis points since 21 February.
