Rupee plumbs below 84.07, but analysts say nothing to worry

RBI governor Shaktikanta Das last week emphasised that the rupee remains one of the least volatile currencies among emerging market peers, reflecting the country’s strong macroeconomic fundamentals.
The dollar-rupee pair is likely to hover in an 83.95 - 84.20 range in the near-term and remains a sell-on uptick if it moves fast.
The dollar-rupee pair is likely to hover in an 83.95 - 84.20 range in the near-term and remains a sell-on uptick if it moves fast.(File Photo)
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MUMBAI: The rupee continued to plumb more depths closing the day in the red again at 84.0725 to the dollar, losing 0.8 paise from the previous close on Friday. But analysts are not very worried about the fall saying crossing the sensitive 84 level is not alarming.

The rupee had for the first time crossed the 84 level last Friday, closing at 84.06 after hitting 84.11 as foreigners continued to sell both equity and debt and globally the greenback has been gaining.    

Foreign investors have offloaded as much as USD 8 billion over the last 10 sessions alone mostly in stocks around USD 125 million in bonds. China's much belated stimulus has also redirected investment flows, with some foreign investors going on record saying time to buy into the Middle Kingdom and sell India’ which has contributed to the rupee's downward trend.

Despite these factors, RBI governor Shaktikanta Das last week emphasised that the rupee remains one of the least volatile currencies among emerging market peers, reflecting the country’s strong macroeconomic fundamentals.

Addressing the media during the post-policy pressure he said there is no alarm arising from the rupee volatility and that there is no concern about it at all.

The rupee dropped to an all-time low of 84.0725 Monday weighed down by persistent dollar demand from foreign banks, likely for their custodial clients. The rupee had dipped to 84.07 Friday.

The rupee had been sniffing at 84 levels for more than two months, but did not cross it with regular interventions by the Reserve Bank.

The rupee remained under pressure throughout this month due to sustained outflows from local equities, with foreign investors pulling out about USD 8 billion over the last 10 sessions.

Traders attributed the fall in Monday to the weakness in Asian peers amid disappointment over China's stimulus.

The dollar-rupee pair is likely to hover in an 83.95 - 84.20 range in the near-term and remains a sell-on uptick if it moves fast, a trader said.

Traders will also be keeping an eye on Brent crude prices, which were down at USD 78/barrel on Monday but have risen nearly 9 per cent so far in October amid concerns of wider Middle East conflict disrupting oil supplies.

Analysts are attributing the sudden fall in the rupee to a slew of factors including the central bank stepping in to contain rupee appreciation to support merchandise exports which has been in some trough for some time now, along with rising economic uncertainties due to the rising geopolitical tension in some parts of the world.

A stronger rupee can make exports more expensive in global markets, or less competitive. It also affects the balance of payments and could hurt sectors dependent on exports.

The Mint Road mandarins intervene in the foreign exchange market to contain volatility in the rupee in either manner.

Some of them are of the view that the rupee is part of a broader, gradual trend driven by global uncertainties rather than a sudden or alarming shift.

According to Saakshi Gupta, the principal economist at HDFC Bank, the rupee’s gradual fall can actually help the economy regain competitiveness.

“We see this as part of its gradual depreciation and not a temporary move. Continued global uncertainty surrounding China, the Middle East, and the US Federal Reserve rate cuts is likely to keep the rupee under pressure. But the RBI has enough reserves to prevent any sharp moves in the currency," she said in a note.

According to economist M Govinda Rao, there is nothing alarming about the rupee's fall, particularly when it is overvalued. With the RBI neutralising capital inflows to prevent appreciation and increasing oil prices due to the Middle East war, the rupee depreciation is only to be expected.

In contrast, DK Srivastava of EY India said the rupee fall is potentially short-term. Oil prices remain volatile, and the domestic interest rates are stable, while rates in advanced economies have declined. This may attract funds back into our shores, he said.

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