The rupee slipped 13 paise to hit its intra-day record low of 77.81 against the US dollar on Thursday, weighed down by elevated crude oil prices and persistent foreign capital outflows. At the interbank foreign exchange, the rupee opened at 77.74 against the American dollar, then fell further and touched its intra-day record low of 77.81, registering a fall of 13 paise from the last close. On Wednesday, the rupee recovered from its record low to close 10 paise higher at 77.68 against the American currency.
Anindya Banerjee, VP, currency derivatives & interest rate, Derivatives at Kotak Securities, said: “USDINR spot closed 2 paise higher at 77.73 levels. RBI policy was a non-event. RBI is expected to keep raising rates in the upcoming meetings as inflation can remain above its target for the full financial year. USDINR could continue to see low volatility. A range of 77.40 to 78.00 remains in play over the near term.”
Uncertain geopolitical conditions have triggered a risk appetite for the weakening of the rupee. Experts said that crude oil prices, bounce back in the dollar index and persistent FII outflows ahead of FOMC meeting are some of the factors which are further prompting the gradual depreciation in the Indian Rupee.
“Elevated crude oil prices, bounce back in the dollar index and persistent FII outflows ahead of FOMC meeting might prompt gradual depreciation in Rupee towards 78.2 levels,” ICICI Direct said in its note.
Bounce Back in the Dollar Index
Meanwhile, the dollar index, which gauges the greenback’s strength against a basket of six currencies, was trading 0.01 per cent higher at 102.55.
FII Sellers
With the prices of global commodities continuing to remain on the upper side, raising inflationary pressures, and elevating domestic inflation, along with higher revised projections in the upcoming quarters, foreign investors are relentlessly offloading their funds from emerging markets like India, weakening their (Indian) currencies.
Foreign institutional investors were net sellers in the capital market on Wednesday as they offloaded shares worth Rs 2,484.25 crore, as per stock exchange data.
Oil Prices
With crude oil prices skyrocketing to record highs, India –which is the third-largest importer of oil is witnessing a significant rise in its import bills. Global oil prices today gave up some early gains after China imposed new COVID-19 lockdown measures in parts of Shanghai imposed. Brent crude futures for August dipped 15 cents, or 0.1 per cent, to $123.43 a barrel, after rising to multi-month highs on Wednesday.
Talking about the impact of the RBI’s decision to hike the repo rate by 50 bps, Gaurang Somaiya, Forex & Bullion Analyst, Motilal Oswal Financial Services, said: “Reaction on the rupee remained muted even after the RBI policy statement wherein the central bank raised rates by 50bps and dropped its “accommodative” stance, signalling stricter tightening ahead to fight soaring inflation. The RBI governor mentioned in his statement that upside risks to inflation as highlighted in the last policy meetings have materialised earlier than expected. The hawkish tone on inflation suggests to us that the MPC will continue to frontload policy tightening over the coming months.”
He further explained that “On the other hand, the dollar again started its upward trajectory following safe-haven buying ahead of the ECB policy statement that is scheduled today and CPI number from the US that will be released tomorrow. The ECB is expected to take a hawkish stance and investors are also discounting interest rate hikes to begin in July. We expect the USDINR(Spot) to trade with a positive bias and quote in the range of 77.40 and 78.20.”
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