Rupee Sinks To Record Closing Low

• 06 Jul 2018

The rupee fell to its lowest-ever close as it weakened further against the dollar to end at 68.95.

• The Indian rupee’s previous closing low was the 68.83 a dollar level, on August 28, 2013.
• The Indian currency has depreciated about 8% against the dollar making it the worst performing currency in Asia.

Reasons

• The rupee has come under intense pressure due to a surge in international oil prices which has increased demand for the U.S. currency among the country’s refiners, who import a bulk of their crude requirement from overseas.
• Fears that surging international crude oil prices could fan inflation and widen the current account deficit have also pulled down the rupee.
• The U.S. Federal Reserve’s hawkish stance (a tight monetary policy with higher interest rates) is also prompting capital outflow by foreign investors from emerging markets like India.
• The government’s recent decision to increase minimum support prices for farmers may prompt the RBI to raise interest rates more steeply than expected –which could also add to inflationary pressures.
• The tariff war imposed by the US on Chinese goods has forced the Chinese currency to depreciate. As a result, emerging markets are letting their currencies depreciate to protect export competitiveness, including rupee – as also suggested by advisers to government.

RBI Intervention

• The rupee’s slide past the 69 mark prompted state-run banks to sell dollars on behalf of the central bank.
• The RBI has been intervening in the foreign exchange market to curb volatility.