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Rupee tumbles to record lows

Rupee tumbles to record lows

Mon Oct 08 2018

 

The Indian rupee continues to get beaten down. The currency tumbled 1.8 per cent intra-week to record a new all-time low of 74.22 on Friday. The Reserve Bank of India (RBI), surprising the market by maintaining status quo, triggered a sharp sell-off in both the currency and the equity market. The market was expecting the RBI to increase rates by 25 basis points, and also announce some measures to curb the free-fall in the rupee. Though the rupee recovered from the low of 74.22, it has failed to sustain higher. The currency reversed lower again on Monday from 73.77 and closed at 74.07, down 1.6 per cent for the week.

 

Along with the surprise move from the RBI, two other factors led to the fall in the rupee last week. The first was the strong surge in oil prices. Brent crude prices surged above $86 per barrel last week, heightening concerns over India’s current account deficit (CAD) widening further.

 

The second factor is the continuing foreign money outflows. After selling $1.42 billion in the debt and $1.49 billion in the equity segments in September, foreign portfolio investors (FPIs) continued their selling spree in the first week of this month. They sold $310 million in the debt and $970 million in the equity segments, respectively, last week. The outflow in the equity segment has been increasing consistently over the last couple of weeks. This remains a concern, and could continue to keep the rupee under pressure.

 

This could possibly be the worst year in the last few years in terms of foreign money outflows. FPIs have pulled out $7.34 billion in the debt and $2.66 billion in the equity segments, respectively, so far this calendar year.

Rupee outlook

 

The outlook for the rupee continues to remain negative. Key resistances are at 73.7 and 73.5. A fall to 74.5 is likely in the coming days. The level of 74.5 is a crucial support level for the currency.

 

The price action around 74.5 will need a close watch as that would be key in deciding the next move. If the rupee manages to recover from 74.5, there is a possibility of a corrective rally to 73 thereafter. But a fresh and strong trigger is needed for this up-move to happen.

 

The level of 73 is a key short-term resistance for the rupee. The downside pressure will ease, and the sentiment will turn positive only if the rupee manages to breach 73 decisively. But such a strong move looks less probable in the near term.

 

Source: Hindu business line.

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