Mumbai: The Indian rupee on Tuesday erased all the morning gains and closed at a fresh record low against the US dollar after local equity markets fell over 1% ahead of key retail inflation. The rupee ended at 72.70 a dollar, down 0.34% from its Monday’s close of 72.45. The home currency opened at 72.30 per dollar and touched a low of 72.74. Following the rupee, bond yield spiked further tracking weakness in the currency. The 10-year bond yield settled at 8.184%, from its previous close of 8.158%. Bond yields and prices move in opposite directions.
Benchmark Sensex Index fell 1.34% or 509.04 points to 37,413.13. Since January, it has gained 9.86%.
The government will issue consumer price inflation and index of industrial production data on 12 September after 5.30pm. According to Bloomberg estimates, IIP will be at 6.5% for July from 7% a month ago. Retail inflation may come at 3.78% in August from 4.17% in July.
Traders await possible measures from the central bank and govt to stem the currency’s declines.
Domestic as well as foreign brokerages started slashing its target after nation’s current account deficit widened. UBS Securities India Pvt Ltd cut its year end forecast to 73 from 66.
“India’s macro risks have widened significantly in FY19, though they are still lower than in FY12/13. As global uncertainties escalate, EM economies like India that are running twin deficits are likely to face heightened financial market volatility as well as downside risks to their potential growth outlook”, said UBS Securities in a 5 September note.
The current account deficit widened to $15.8 billion in the April-June quarter from a year ago due to a larger trade gap. The CAD widened to 2.4% of gross domestic product (GDP) in April-June, from 1.9% of GDP in the January-March quarter, data released Friday showed.
Emkay Global expects that the currency likely to weaken 74-75 due to the lesser intervention by Reserve Bank of India and volatility in capital flows.
Motilal Oswal Securities expects in short term the currency could test levels of 73.20 a dollar. “ We expect that rupee could continue to feel the pain in the short term and intervention could restrict the pace but bias for the rupee is still negative”, said Gaurang Somaiya currency analyst at Motilal Oswal.
So far this year, the rupee has weakened 12%, while foreign investors have sold $405.60 million and $6.34 billion in equity and debt markets, respectively.
Bloomberg contributed this story