The rupee has been among the hardest hit in Asia from the recent Turkey-led sell-off in emerging assets, thanks to a wide current-account deficit that’s already strained by higher oil prices.
The rupee hit the 70-per dollar mark for the first time, tumbling to a record low, as a Turkey-led rout in emerging-market currencies intensified losses. The rupee slipped as much as 0.2 percent to 70.08 per dollar in Mumbai and is down almost 9 percent this year in Asia’s worst performance.
The rupee has been among the hardest hit in Asia from the recent Turkey-led sell-off in emerging assets, thanks to a wide current-account deficit that’s already strained by higher oil prices. A weaker rupee could complicate the Reserve Bank of India’s job of keeping inflation in check. Markets LIVE Updates: Sensex rebounds after Rupee crash
The RBI’s monetary policy committee led by Governor Urjit Patel has increased interest rates twice since June to curb price pressures, while also using foreign reserves to check currency volatility. The central bank doesn’t target the exchange rate and attributes any rate moves to its goal of containing rising prices.
“Broader emerging-market currency movement, dollar strength, and the trend in crude oil prices will drive the outlook for the rupee in the immediate term,” Aditi Nayar, principal economist at ICRA Ltd. in Gurugram, near New Delhi, wrote in a note Monday. “The RBI is likely to assess the trend in the rupee vis-a-vis the EM currency pack. If all EM currencies are depreciating, the rupee must weaken to protect export competitiveness.”
On Monday, the rupee had plunged by Rs 1.08, or 1.57 per cent, to a record low of 69.91 against the US currency.
In a ray of hope for domestic economy, latest data showed that retail inflation fell to 9-month low of 4.17 per cent in July on declining vegetable prices which may prompt the Reserve Bank to pause interest rate hike in its next monetary policy review.
In the last two reviews, the RBI had raised the key repo rate by 0.25 per cent each on inflationary concerns. The next bi-monthly policy is to be unveiled on October 5.