Saturday, 17 November, 2018

Rupee hits all time low; falls sharply at 68.89

Rupee touched its record low of 69.10 a dollar in morning trade on Thursday Rupee touched its record low of 69.10 a dollar in morning trade on Thursday
Elsie Buchanan | 30 June, 2018, 09:05

Rising crude prices, a trade war between United States and China, widening of fiscal deficit and inflation situation because of high oil prices are reasons for rupee hitting its all-time low.

A growing number of emerging markets are coming under pressure from the same forces.

In Thursday's trade, the bid-ask spread widened to 1-1.5 paise from the usual 0.05 paise, indicating a (dollar) liquidity crunch in the market.

Meanwhile, worries over mounting global trade war fears kept markets across Asia jittery with the MSCI's broadest index of Asia-Pacific shares outside Japan trading 0.7 percent lower.

The rupee regained some ground against the dollar to end trading in India back below 69 rupees to the dollar, but the pressure on the currency is likely to continue amid global uncertainty about how growing trade friction and rising lending rates around the world will evolve, said Dushyant Padmanabhan, a currency strategist at Nomura.

Keeping in view, some of the banks have estimated still higher levels for the rupee against the dollar at 72 given the rising crude oil price which is seen as a continuos unfavorable point for the government finances.

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The rupee has shed 7.7 percent this year, making it the worst performing currency in Asia, followed closely by the Philippine peso.

Jim Vogel, a fixed income strategist at FTN Financial Capital Markets, said economists were convinced until a few weeks ago that emerging market damage would be contained, with just three or four countries suffering most of the damage. West Texas Intermediate crude declined 0.3 per cent to $72.53 a barrel in NY after rallying 3.2 per cent Wednesday. The Chinese Yuan is being devalued on a daily basis.

Other Asian economies are much more vulnerable than China. Prior to Thursday's fall, the rupee tested an all-time intraday low on 24 November 2016 when it tested 68. Subsequently, the Indian currency was feeling itself under pressure.

Moody's warned this week that Argentina and Turkey are among the countries most vulnerable to a stronger U.S. dollar. "We have adequate reserves, there is adequate firepower", Garg said. Historically, we have gone to even higher levels.

Benchmark interest rates have been pushed up to 40% in Argentina and almost 18% in Turkey.

"The government, however, believes the situation will not worsen on the economic front and the central bank might put off on any rate hikes".

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