The Indian rupee was trading near its all-time low in afternoon trade today after opening higher by 19 paise at 73.87 compared to previous close of 74.06 against the dollar. The rupee fell to 74.20, down 14 paise from its previous close.
The rupee has fallen 16.56% to an all-time low of 74.22 level intra day (October 5) since the beginning of this year on burgeoning current account deficit, rising crude oil prices and increasing dollar strength. The US dollar strength against major global currencies weighed on the rupee sentiment. The US dollar index stood at 95.76, up 3.95% since the beginning of this year.
On Monday, the Indian currency slumped 30 paise to close at a fresh lifetime low of 74.06 against the US dollar. The rupee had opened lower by 14 paise against Friday's close of 73.76 in early trade as the US dollar strength against major global currencies weighed on the rupee sentiment.
FII outflows have affected the home currency. FIIs have withdrawn Rs 13,778 crore from the Indian market in the last five trading sessions.
On Monday, they pulled out investment worth Rs 4,420 crore from Indian capital markets.
Overseas investors pulled out a massive ?21,034 crore from the capital markets in September, making it the steepest outflow in four months, on widening current account deficit amid global trade tensions. The latest withdrawal comes following a net infusion of close to ?5,200 crore in the capital markets (both equity and debt) last month and ?2,300 crore in July. Outflow of funds from the Indian market leads to a fall in the value of rupee since there is more demand for dollars from foreign investors after exiting the Indian market.
Current account deficit
A burgeoning current account deficit (CAD) has become a big worry for the home currency. CAD in the first quarter of this fiscal widened to $15.8 billion, which is around 2.4 per cent of the country's Gross Domestic Product (GDP), as compared with $15 billion in the corresponding quarter a year before.
In the January-March quarter, the trade shortfall stood at 1.9% of the GDP. A rise in the current account deficit leads to depreciation in the value of rupee since more quantity of local currency needs to be utilised for payment of higher imports
Brent crude price
A rise in brent crude prices has also adversely affected the rupee. The brent crude oil price has risen 30.23% from 66.57 level since the beginning of this year. It touched an all time high level of 86.74 level recently. India is 81 per cent dependent on imports to meet its oil needs and is the third-largest importer of crude after US and China. Since payment of crude oil prices is done in dollars, a higher crude rate leads to more amount of rupee being converted to dollar, thereby strengthening the US currency.