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Explainer: What pulled rupee down to its lowest value?

NEW DELHI: The rupee closed on Monday at a new all-time low of 77.50 against dollar breaching the previous record of 77.05 earlier in day.
It lost 60 paise during the session, during which it touched the lowest point of 77.52. The rupee has now lost 115 paise against the dollar in two trading sessions.
Why: A combination of factors, including some prolonged ones, are at work – the Ukraine war, global uncertainty, China’s vulnerability, rising inflation and aggressive rate hikes by global central banks.
Global factors: Uncertain global economic conditions, prompting forex traders’ flight-to-safety trade, have triggered a risk appetite for the dollar weakening the rupee.

America: Driven by higher treasury yields, the dollar has climbed to its highest levels in two decades as inflation surges and anticipation rises for further rate hike by the US Federal Reserve in its next review soon.
China: Beijing’s zero-Covid policy and slowing economic growth have further unsettled forex markets that are struggling to deal with the war that has entered its third month in Europe.
At home: Rising oil prices, a 17-month-high inflation breaking the RBI-mandated ceiling and intense selling by the foreign institutional investors – net sellers for seven months now – have pulled down the rupee to its lowest level.
“Indian rupee spot plunged to record lows, tracking weakness in Asian peers amid a stronger dollar index and surging treasury yields in the US,” Royce Vargheese Joseph – research analyst – currency and energy, Anand Rathi Shares and Stock Brokers said.
Joseph further said “elevated crude prices and rising domestic inflation, well above RBI‘s upper band, might prompt further FII selling from domestic securities. Meanwhile, RBI’s off cycle meeting on 4th May did little to strengthen the Rupee. Going forward, we might see the rupee spot weakening towards 77.8 levels.”
The dollar index, which gauges the greenback’s strength against a basket of six currencies, was trading 0.33 per cent higher at 104, tracking rising US yields amid fears about higher interest rates.
“Rupee fell to fresh all time lows on Monday as the dollar rose broadly against its major crosses. Last week’s central bank policy action led to heightened volatility in most of the currencies. Stronger dollar and sustained up move in global crude oil price is weighing on the overall market sentiment,” said Gaurang Somaiya, forex & bullion analyst, Motilal Oswal Financial Services.
Somaiya further said that this week, focus will be on inflation data of India and the US.
Impact: There is an upside as well as a downside to rupee losing its value against dollar
-Boost for exports
-Expensive for FIIS to withdraw money
-More attractive for them to invest in IPOs
-Imports get more expensive
-Bad news for those traveling abroad, going for foreign education
-Will add to overall inflation in short term
(With inputs from agencies)

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