MUMBAI: The rupee, the worst performing currency among its Asian peers, has tumbled to a new all-time low, breaching the 89-mark for the first time. The currency plunged to 89.61 intraday and closed at 89.43, losing as many as 87 paise to the dollar on Friday. This is the worst single-day fall of the rupee since May 8.
Traders said the continuing pain of the rupee, which has so far lost a whopping 4.6% this year till date, is due to a slew of factors such as the continuing selloff by foreign funds, a rising dollar and the higher domestic demand for the greenback, along with missing clarity on a trade deal with the US. They are expecting the next low for the rupee at 90.
Significantly, the sharp plunge in the currency comes a day after Reserve Bank governor Sanjay Malhotra said the central bank does not target any specific level for the rupee. He said the ongoing fall of the unit is mainly driven by higher dollar demand and trade tensions and that once the country reaches a trade agreement, which he hoped would be a good deal and coming soon, the rupee will recoup.
This sharp decline was also driven by the reduced risk appetite due to the fading hopes of a Federal Reserve rate cut next month. Another reason is the continuing selloff by foreign investors who have pulled out a whopping $16.5 billion from domestic equities so far this fiscal, they added.
Fresh pressure has come on the rupee with the US economic sanctions imposed on certain domestic firms linked to the Iran oil trade, as well as the two Russian government-owned oil companies, which are the major suppliers of Russian crude.
The rupee had reached its previous worst level on September 11 when it hit a low of 88.90.
The near-term outlook for the rupee remains challenging amid a resurgent dollar, with the dollar index climbing back above the 100-mark. The dollar index has gained 0.9% over the past five sessions, extending its three-month advance to 2.5%, traders said.
The rupee is the weakest major Asian currency this year as foreign investors have withdrawn $16.5 billion from domestic equities so far, compounding the pressure, which is already contending with hedging interest from importers and muted activity from exporters.
The rupee declined to record lows on Friday, weighed down by US sanctions on an Indian firm dealing with Iran, a widening trade deficit, and a delay in the US-India trade deal, said Anil Kumar Bhansali, head of treasury and executive director at Finrex Treasury Advisors.
He said the market was calm till early afternoon. “But when it fell to 88.80, participants became jittery, and some players pressed the panic button and resulting in a short squeeze," he added.
Despite strong economic fundamentals and a weaker dollar, the rupee has been depreciating, Yes Securities said in a note, adding the punitive US tariffs may not have been the most important reason for the pressure on the rupee as exports overall have remained steady in the first 10 months of the current fiscal.
“Once the RBI allowed the rupee beyond the 88.80-levels, which it has been holding for too long, markets started covering short positions and this led to the currency to lunge beyond the 89 levels,” its analysts said, adding, “Guessing end-March levels now would be difficult as the rupee has now moved into uncharted territory, but we think that it may be capped at 90.”
The US treasury department had, on October 22, imposed a November 21 deadline for private refineries to stop purchasing Russian crude, particularly from the state-owned Rosneft and Lukoil, two of Russia’s largest crude producers. Reliance Industries had said Thursday that it had stopped importing Russian crude.