Mumbai: The rupee today plummeted to almost ₹ 72 per dollar on concerns of contagion from other emerging markets. At 3.40 pm, rupee was trading at 71.83 a dollar, down from Tuesday’s close of 71.57. It opened at 71.45 and touched a low of 71.97. This is the sixth consecutive session when the currency fell.
The Reserve Bank of India (RBI) likely intervened mildly in the forex markets on Wednesday, two traders told Reuters, as the rupee hit a fresh low in line with other emerging market currencies hurt by dollar strength and simmering trade tensions. The RBI is expected to have sold dollars at 71.80 rupees per dollar in the local spot forex market to stem a sharp fall in the Indian currency.
Wednesday brought in even more bad news from emerging markets as South Africa’s economy slumped into recession on Tuesday, a day after Turkey reported a surge in inflation. Philippines announced on Wednesday that inflation has exceeded 6% for the first time since 2009.
“A deteriorating EM risk backdrop and pressure on current account deficit currencies has led rupee vs dollar to multi-year highs. We see risk of continued rupee depreciation in the near term and enter a short-dated long rupee vs dollar call spread position. Local factors for depreciation include limited intervention by the Reserve Bank of India (RBI) and limited concerns, in our view, over FX depreciation (watch this space), a lack of urgency to hike rates, rising political risks, and a large trade deficit with a higher oil price and portfolio outflows”, said Nomura Research in a recent report.
Bond yields gained for the eight consecutive session as the weakening rupee and surging crude oil prices sparked fears of an RBI rate hike. The central bank has already hiked its repo rate twice this year.
The 10-year bond yield stood at 8.091%, from its previous close of 8.063%. Bond yields and prices move in opposite directions.
“The hike will probably deal a blow to a still-nascent recovery in growth. We had expected a hold, based on our view inflation has already peaked and that the economy needs support in the face of high borrowing costs and oil prices, and a weak banking sector,” Bloombergeconomist Abhishek Gupta said. “The central bank attempted to allay fears of a steep rate hiking cycle ahead by sticking to a neutral stance. The initial market reaction to the decision was negative—suggesting concerns about a stumble in the recovery.”
So far this year, the rupee has weakened 11%, while foreign investors have sold $488.60 million and $5.75 billion in equity and debt markets, respectively.
The benchmark Sensex fell 0.59% or 224.16 points to 37,933.76 today. Since January, it has gained 13.47%.
Bloomberg contributed this story.