Published: Sun, October 07, 2018
Business | By Eloise Houston

Rupee plunges to fresh record low of 73.77 against dollar

Rupee plunges to fresh record low of 73.77 against dollar

The 30-share Bombay Stock Exchange Sensex fell sharply, with investors anxious that the fall in the rupee and increase in crude-oil prices would further widen the trade deficit.

Coming back to the Indian Rupee Exchange Rate, the recent downfall in the rupee is being attributed to the RBI's decision to keep its lending rates unchanged.

Stocks are down, the Indian rupee keeps falling to all-time lows against the USA dollar, and bond yields are rising. The BSE Sensex too plunged by 584.53 points, or 1.66 per cent, to 34,584.63 in late afternoon trade.

A higher interest rate in the U.S. will likely prompt the RBI to tighten the policy rate despite a relatively tame inflation, as the central bank seeks to cushion the rupee's fall, the analysts said.

After two successive hikes, the repo rate now stands at 6.50 per cent.

THE Indian rupee on Wednesday crashed below the 73 mark against dollar for the first time ever on strong demand for the American currency from importers amid rising global oil prices and unabated capital outflows. "Its intervention is likely to be far more effective in stabilising the rupee than other policy measures taken by the government or itself", said Abheek Barua, chief economist at HDFC Bank. The 10-year yield fell 13 basis points to 8.03 per cent.

Repo rate is the rate at which the RBI lends money to banks and is an important tool for RBI to control inflation.

Currently, the Brent crude oil price is around $85 per barrel.

"The unchanged decision suggests that the Reserve Bank of India is not overly concerned about rupee depreciation", said Mitul Kotecha, a senior emerging-markets strategist at TD Securities in Singapore.

In absolute terms, the rupee is down around 17 per cent since January this year.

Foreign portfolio investors (FPIs) bought shares worth a net of Rs 1,550 crore, while domestic institutional investors (DIIs) made purchases to the tune of Rs 1,402 crore Wednesday. The finance minister said on Tuesday that the economy was adjusting "quite well" to higher USA interest rates and the fall of the rupiah, asserting that many of its economic indicators were good.

A plunging currency may prompt the Reserve Bank of India to hike interest rates for the third time since June when it meets on Friday. "Should there be a fiscal slippage at centre or states, it will have a bearing on the inflation outlook, besides heightening market volatility and crowding out private investment", the RBI governor said.

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