The rupee has just hit a new all-time low. The Indian currency collapsed to a record low of 69.10 against the US dollar by plunging 49 paise in early trade today as rising crude oil prices deepened concerns about the country's current account deficit and inflation dynamics. It had opened at 68.87 a dollar at the interbank foreign exchange market - against 68.61 previously - and quickly proceeded to set a record. The rupee had touched its previous record low of 68.86 per dollar on in November 2016.
Since Monday, the rupee has depreciated 1.2 per cent as consistent dollar demand from banks and importers, mainly oil refiners, following higher crude oil prices kept the rupee under pressure. Global oil prices have climbed after the US asked its allies to end all imports of Iranian oil by November. Concerns over supply disruptions in Libya and Canada also pushed prices higher. Brent crude was trading at nearly $78 a barrel in Asian trade today.
Given that India is the world's third largest oil importer, any hike in global oil prices will inflate the import bill and disrupt the fiscal position. India's current account deficit (CAD) has already widened 42 per cent year-on-year to $160 billion in FY18, and a high deficit means the country has to sell rupees and buy dollars to pay its bills. This further reduces the value of the rupee.
The sustained foreign capital outflows have also played a big role. Foreign portfolio investors have pulled out more than Rs 46,600 crore from the capital markets (equity and debt) in the year so far. It does not help that the general elections are coming up next year - a time when most foreign investors go into fence-sitting mode.
Another major factor weighing down the rupee is the ongoing trade turmoil between the world's two largest economies, the US and China, which continues to roil forex market sentiments. Fears of an escalating trade conflict between US and China have ratcheted up another notch following US President Donald Trump's recent threat aimed at Chinese investments - a move which could have great long-term consequences on the US-Sino economic ties. According to brokers, this concern had accelerated selling on the domestic bourses.
According to The Times of India, the currency market is also nervous after the RBI painted a gloomy picture of the banking sector in its recently-released Financial Stability Report. According to the report, the Gross NPA ratio of scheduled commercial banks (SCBs) is likely to rise to 12.2 per cent of total loans in the current fiscal, up from 11.6 per cent in March 2018.
So how does this situation affect you? To begin with, a depreciating rupee could put inflationary pressure on the economy. It also spells a higher cost of living for those travelling abroad, be it on holiday or to study. The erosion in rupee's value has reportedly adversely impacted the bond market - the 10-year benchmark bond yield shot-up to 7.87 per cent from 7.83 per cent on Wednesday.
Even the stock market has been left reeling. Benchmark Sensex fell over 90 points in early trade today. The 30-share index, which had lost 272.93 points in the previous session, fell further by 90.26 points, or 0.25 per cent to 35,126.85. The NSE Nifty also dropped by 31.30 points, or 0.29 per cent, to 10,640.10.
Sectoral indices, led by realty, capital goods, PSU, oil and gas, infrastructure, banking and power, remained in the negative zone, declining up to 1.43 per cent. The laggards included NTPC, Coal India, L&T, Hero MotoCorp, ICICI Bank, Power Grid, SBI, Tata Motors, Adani Ports, Asian Paints, HDFC Ltd, Maruti Suzuki, Yes Bank and Bajaj Auto, falling up to 2.48 per cent.
Bucking the trend, stocks of software exporter such as Infosys, TCS and Wipro were trading higher by up to 2.12 per cent, largely supported by the weak rupee.
With PTI inputs