NEW DELHI: Growing concerns over a widening trade deficit saw the rupee battered again on Thursday, hitting a new all-time low of 70.40 per dollar in the morning session, before closing the day above the 70-mark for the first time in history. Firm dollar demand also contributed to the currency’s fall to 70.15 per dollar at close of the day, down 0.37 per cent. A sharper fall was fended off by an intervention from the Reserve Bank of India (RBI) during the day, according to traders.
Exacerbated by other developments, the plunge triggered by the Turkish Lira’s fall has seen emerging markets like India and their currencies facing intense selling pressure. However, while a cocktail of factors saw the rupee struggling to pull back from the 70-mark, the lira continued to rebound from record losses a day after Qatar pledged $15 billion in investments to help the Turkey’s economy.
The key factor driving negative sentiment is the widening trade deficit, which rose to a five-year high of $18 billion in July. The Indian rupee is also being weighed down by a continuing exodus from both the equity and debt markets due to anticipated tightening by the US Federal Reserve in interest rate policy.
Government officials, including Niti Aayog vice-chairman Rajiv Kumar, reiterate that the currency was coming back to its natural value after witnessing a 17 per cent appreciation in the last three years.
The Rupee has already lost 10.5 per cent of its value this year driven by widening fiscal deficits and sharply increasing crude oil prices. Heightening global trade tensions after the initial salvo fired by US president Donald Trump earlier this year, has only worsened negative sentiments. Apart from fears from importers that purchases are going to cost much more with a weak rupee, even exporters express apprehensions about the impact it would have on inflation.