PremiumMUMBAI: The Indian rupee fell to an eight-month low against the US dollar on Friday, given the Reserve Bank of India's (RBI) massive bond purchase programme amid inflationary concerns.
The Indian unit had opened at 74.77 to a dollar today, and touched a low of 74.97, a level last seen on 20 August. At 1pm, the currency was at 74.86 to a dollar, down 0.33% from its previous close. So far this year, the rupee has declined nearly 2.4% against the US greenback.
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On Wednesday, RBI announced its intention to buy Rs1 trillion in bonds from secondary markets in a G-SAP (secondary market government security acquisition) programme this quarter to keep borrowing costs low and support economic recovery.
"The RBI’s government bond purchase programme announcement is a negative surprise for INR, in our view. The negative risks to INR have grown with this policy stance in view of rising local inflation, a weaker fiscal position and rising global yields", said Nomura Research in a note to its clients.
India reported a record 1,31,968 infections on Friday. Meanwhile, a shortage of vaccines with fresh localised lockdown in several states have spooked investors.
In last nine trading sessions, foreign institutional investors (FIIs) have sold nearly $1.02 billion in equities, while so far this year, they have sold $2.35 billion in debt.
"Amidst increasing growth downside risks, stretched equity markets positioning (and valuations), seasonally weak dollar supply (in Apr, May) and now the QE announcement - we expect INR's recent weakness to extend and recommend positioning for $INR call spread targeting 75.5", according to UBS report.
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