Fear of another round of lockdown hitting economic recovery led traders to sell the rupee and buy US dollars. As a result, the Indian counter on Wednesday saw its worst one-day fall in nearly 20 months since August 2019. It was down 1.5 per cent on Wednesday. Traders fear the rupee could hit 75 to the dollar though it closed the day at 74.47.
The fall in rupee came after the RBI decided to maintain a status quo on its key interest rate for the fourth consecutive time fearing a slowdown in economic recovery.
On the positive side, the International Monetary Fund (IMF) raised its India’s 2021-22 growth forecast to 12.5 per cent from 11.5 per cent it had estimated in January. If this happens, for the first time that India will have grown in double digits ahead of China, which is expected to grow at 8 per cent in FY22. However, the fall in rupee currently is not reflecting any such positives.
Pandemic pain
Kshitij Purohit, currency and commodity analysts at CapitalVia Global Research, said, “After the Maharashtra lockdown, the increase in Covid-19 cases in India has dampened investor sentiment, and expectation is that the rupee will steadily weaken. If prices consolidate here and start falling, we may expect prices to test support levels in the range of 73.40-73.30.”
Any fall in the rupee hurts India as it is the largest importer of electronic goods and crude oil both of which will get costlier. The rupee’s fall so far is not linked to any outflow of foreign money as no major selling has been seen by this category of traders in the stock markets so far. Analysts say the fall is more of a knee-jerk reaction of traders to the lockdown.