Rupee falls to 69.05 per US dollar for first time
The Indian rupee slumped to a lifetime low in the trade as a confluence of factors ranging from a stronger dollar, to higher oil prices, a wider current account deficit and foreign portfolio outflows pushed the currency lower.
The Indian currency weakened to 68.9100 per dollar Thursday, past its previous record of 68.8650 reached in November 2016.
This was the lowest closing for rupee against the US dollar since November 24, 2016, when it had settled at 68.73.
“Given India’s current account deficit, there is a need to fund it, but we are on track for a fifth consecutive month of bond outflows and the equity market has also been experiencing outflows,” said Khoon Goh, head of Asia research at Australia & New Zealand Banking Group Ltd. in Singapore. Without a turnaround, the rupee may weaken past 70 per dollar, he said.
Reserve Bank of India governor Urjit Patel, in a recent editorial in the Financial Times, warned of dollar funding drying up for emerging market economies. In his view, higher borrowings from the U.S. government against the backdrop of reduced liquidity due to the unwinding of the U.S. Federal Reserve’s balance sheet will mean that emerging markets could face a ‘dollar double whammy’.
Foreign funds have reduced holdings of rupee-denominated government and corporate bonds by $6.1 billion, and pulled $785 million from equities since the beginning of 2018.
The withdrawals have helped made the rupee the worst performer in Asia.
Every $10 rise in the oil price worsens India’s current-account balance by 0.4 percent of GDP, and pushes up inflation by 30-40 basis points, according to Nomura Holdings Inc.
Crude has gained this week as the U.S. puts pressure on its allies to halt purchases of Iranian supplies.