MUMBAI: The rupee fall remained unstoppable, with the domestic currency weakening to a historic low of 71 against the US dollar on Friday. The slide was on account of a sell-off in emerging market currencies and countries with wider current account deficits. The rupee opened at 71, touched a high of 70.86 and a low of 71. Eventually, it closed down 0.4 per cent at 70.9950, capping its biggest monthly retreat in 36 months.
“The dollar index continues to remain higher on expectations of aggressive interest rate hike by the Federal Reserve. The RBI is intervening selectively to contain volatility and is unlikely to be aggressive as the rupee is still overvalued and currencies of emerging market economies are depreciating sharply. The government also seems to be comfortable even if the rupee depreciates further,” said Rushabh Maru, Research Analyst, Anand Rathi Shares & Stock Brokers.
The 10-year bond yield stood at 7.943 per cent, up 18 bps for the month, Sensex was down about 50 points, while sovereign bonds saw their biggest fall in four months. So far this year, rupee value eroded nearly 10 per cent, and continued its run as the worst performer among Asian currencies. In August alone, it fell 3.4 per cent – its single biggest monthly fall in three years. Besides sell-off of emerging markets currencies, elevated oil prices and concerns of fiscal slippage are pressuring rupee to continue the downward slide.
Other Asian currencies too were trading lower with South Korean won losing 0.389 per cent, Indonesian Rupiah 0.204 per cent, Philippine Peso 0.110 per cent and Taiwan Dollar 0.101 per cent. According to traders, rupee’s drop spurred dollar-selling by state-run banks, but failed to curb the losses. However, the intensity of RBI’s intervention seems to have dissipated, following comments from the government giving the impression that they support the rupee fall.
“We see depreciation bias and momentum continuing in the near-term and this has implications for exporters, importers and borrowers in forex market. This momentum could dissipate if not reverse suddenly and the way to play the rupee market in the near-term if through continuous monitoring of this momentum bias,” said Abheek Barua, Chief Economist, HDFC Bank.
He added that things, however, could change if the government changes its stance making the rupee fall as a crisis and once that needs to be tackled using several options to reverse the trading bias. “An out-of-policy rate hike or a scheme to bring in a fresh tranche of NRI deposits figure on the list,” he said.