MUMBAI: The rupee closed at a fresh, all-time low of 69.93 against the US dollar Monday, spooked by contagion fears from the turmoil in Turkey. In other words, rupee is now on a cliff, and just needs a 7-paise push to breach the psychological 70-mark, which appears to be round the corner. Falling rupee makes imports dearer, including fuel and electronics, and travelling and studying overseas expensive. Export-dependent sectors like IT and Pharma gain in dollar terms, but it blows the lid off oil marketing and consumer goods firms.
Retail inflation cooled in July, and could calm traders’ nerves when markets open Tuesday, but rupee’s fate depends on Turkish currency lira, which caused a mini crash of currencies in emerging markets. Lira lost nearly 45 per cent so far this year, and touched an all-time low of 7.32 to dollar Monday, and dragged down currencies of BRICs bloc and others. Rupee slid 1.56 per cent, the steepest fall since September 3, 2013, while Brazil’s real saw its worst week since November 2016. Russia’s ruble, already under pressure, lost 2 per cent, Chinese Yuan extended losses for a ninth week, while the South African rand was butchered 7 per cent. Others like Malaysian ringgit and Mexican peso tumbled, while the dollar index, traded at 96.412, up 0.06 per cent from its previous close of 96.357.
Lira’s slump is specific to Turkey and shouldn’t derail other markets, but some fear short-term affects, further shaking global markets that are on a slippery slope, as the US continues to whack duties on aluminum, steel and soyabean. “Broader emerging market currency movement, dollar strength and the trend in crude oil prices will drive the outlook for rupee in the immediate term.
Given the prevailing risk aversion in global markets, we don’t rule out that the rupee will briefly cross 70/USD before retracting to 69/USD levels,” said Aditi Nayar, Principal Economist, ICRA Ltd. So far this year, rupee lost 8.67 per cent, while foreign investors sold $200.10 million. “The RBI is likely to assess the trend in the rupee vis-a-vis the emerging market currencies. If all EM currencies are depreciating, the rupee must weaken to protect the export competitiveness,” Nayar added.