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Mumbai: The rupee fell 20 paise to a record closing low of 83.15 against the dollar on Thursday due to a rise in US bond yields and a fall in the Chinese yuan.
The rupee moved in line with other emerging market currencies, slipping against the dollar after China’s unexpected rate cut on Tuesday aimed at stimulating its slowing economy. Currency markets were closed on Wednesday due to a bank holiday in Mumbai.
The dollar has been gaining this week after the US Federal Reserve indicated that further rate hikes may be needed to control inflation. The Fed’s statement pushed up yields on US bonds, strengthening the dollar as higher yields make American securities more attractive to global investors. The US 30-year yield reached a level last seen in 2007, Bloomberg reported.
RBI has been a net purchaser of dollars in the foreign exchange market in the current financial year. The central bank has been intervening to buy dollars brought in by foreign portfolio investors to build up its reserves and prevent the rupee from appreciating. According to RBI data, the central bank bought a net $4.5 billion in the spot foreign exchange market in June, taking the cumulative purchases during FY24 to $19.5 billion in June from $15 billion in May. The forex reserves stood at $601 billion on August 4.
Dealers said that RBI had been intervening in the forex market to keep rupee above the 83 level. However, the central bank appears to have eased its grip on the exchange rate to let it move with other Asian peers. The Malaysian ringgit and Korean won fell the most among Asian currencies.
“We suspect RBI may have intervened and sold dollars. However, over the near term, the bias remains upward, and we could see the rupee breaching 83.24 — the previous all-time high. We expect a range of 82.9 and 83.8 on the spot,” Anindya Banerjee of Kotak Securities said.
Economists do not see any cause for concern on the external front as the country is expected to end the year with a net surplus of dollars due to capital flows from FPIs and NRIs. Also, current account deficit (CAD) is expected to be manageable at around 1.5% of GDP due to a slowdown in global trade.
“An expected slowdown in domestic growth in the second half of this fiscal year would keep a check on India’s imports. At the same time, services export growth appears to be turning robust again. As a result, we project India’s CAD, which was 2% of GDP in FY23, to soften to 1.8% this fiscal year,” Crisil chief economist D K Joshi said in a report.
Dealers said that although the trend was that of dollar strength, the exchange rate situation was better in October 2022 when the rupee touched its lifetime low of 83.29 during intraday trade.
The rupee moved in line with other emerging market currencies, slipping against the dollar after China’s unexpected rate cut on Tuesday aimed at stimulating its slowing economy. Currency markets were closed on Wednesday due to a bank holiday in Mumbai.
The dollar has been gaining this week after the US Federal Reserve indicated that further rate hikes may be needed to control inflation. The Fed’s statement pushed up yields on US bonds, strengthening the dollar as higher yields make American securities more attractive to global investors. The US 30-year yield reached a level last seen in 2007, Bloomberg reported.
RBI has been a net purchaser of dollars in the foreign exchange market in the current financial year. The central bank has been intervening to buy dollars brought in by foreign portfolio investors to build up its reserves and prevent the rupee from appreciating. According to RBI data, the central bank bought a net $4.5 billion in the spot foreign exchange market in June, taking the cumulative purchases during FY24 to $19.5 billion in June from $15 billion in May. The forex reserves stood at $601 billion on August 4.
Dealers said that RBI had been intervening in the forex market to keep rupee above the 83 level. However, the central bank appears to have eased its grip on the exchange rate to let it move with other Asian peers. The Malaysian ringgit and Korean won fell the most among Asian currencies.
“We suspect RBI may have intervened and sold dollars. However, over the near term, the bias remains upward, and we could see the rupee breaching 83.24 — the previous all-time high. We expect a range of 82.9 and 83.8 on the spot,” Anindya Banerjee of Kotak Securities said.
Economists do not see any cause for concern on the external front as the country is expected to end the year with a net surplus of dollars due to capital flows from FPIs and NRIs. Also, current account deficit (CAD) is expected to be manageable at around 1.5% of GDP due to a slowdown in global trade.
“An expected slowdown in domestic growth in the second half of this fiscal year would keep a check on India’s imports. At the same time, services export growth appears to be turning robust again. As a result, we project India’s CAD, which was 2% of GDP in FY23, to soften to 1.8% this fiscal year,” Crisil chief economist D K Joshi said in a report.
Dealers said that although the trend was that of dollar strength, the exchange rate situation was better in October 2022 when the rupee touched its lifetime low of 83.29 during intraday trade.
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