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Four factors why rupee closed at 15-month low today

Kotak Mahindra Bank has said the rupee could fall past its 2016 record low of 68.89 per dollar if global and local risks play out, according to a Bloomberg report. We look at why the Indian currency breached the 67 level to the dollar again.

twitter-logo BusinessToday.In   New Delhi     Last Updated: May 8, 2018  | 11:31 IST
Four factors why Rupee closed at 15-month low today

The rupee closed 26 paise lower to hit 15-month lows of 67.13 against the dollar on sustained dollar demand from importers and banks amid sharp rise in the greenback overseas. The Indian currency had closed at 66.87 level on Friday. The rupee opened higher at 66.82 and witnessed sudden bouts of volatility as it spiralled down to a low of 67.13. Brokerages and analysts see further fall in rupee on global cues and domestic fiscal situation.

Kotak Mahindra Bank has said the rupee could fall past its 2016 record low of 68.89 per dollar if global and local risks play out, according to a Bloomberg report.

We look at why the Indian currency breached the 67 level to the dollar again.

Sale by FIIs

FIIs have been net sellers in Indian equities for the last 15 sessions of trade. The sale has led to outflow of dollars and weakened the currency. Continued selling by foreign investors in local equity and bond markets affected sentiment at the forex market here, a dealer said. Foreign investors and funds pulled out over Rs 15,500 crore from the Indian capital market in April, making it the steepest outflow in 16 months, due to surge in global crude prices and rise in yields of government securities.

US dollar rises

The US dollar stayed near its 2018 peak at four-month highs against a basket of currencies day after US jobs and wages data did little to temper perceptions of strength in the American economy. The dollar has rallied heavily over the past two weeks after investors rushed to unwind short positions and bet that higher rates in the U.S. and signs its economy is performing better than other regions would feed through to a stronger currency.

Oil above $75 per barrel

High brent crude prices above $75 per barrel put pressure on India's import bill which potentially puts downward pressure on the Indian currency.

Current account deficit

India's current-account deficit, which already widened to $13.5 billion in Q3 FY18, up 87 per cent over the previous quarter, is forecast to hit its highest level in six years in this fiscal. According to Kotak Securities, the value of a free currency like rupee depends on its demand in the currency market, which is why it depends to a great extent on the current account deficit. A high deficit means the country has to sell rupees and buy dollars to pay its bills. This reduces the value of rupee.

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