Indian Rupee in free fall against US dollar; 4 key factors to blame
The Indian rupee has been hovering over 67-mark in past week and now has ended over 68-level, indicating its worst performance at EM market.
The Indian Rupee has once again entered the over 68-mark territory against US dollar benchmark indices at interbank forex market. This has made Indian rupee plumb a 17-month low - it weakened against dollar index at 68.470 down 0.605 points or 0.89% on Friday. The rupee has been hovering over 67-mark over the past week and now has ended over 68-level, indicating its worst performance at EM market. It was only on June 06, when rupee strengthened against US dollar by earmarking near 66-mark, which was boosted by RBI’s monetary policy decision where the central bank decided to hike policy repo rate and still maintain a neutral stance.
It is being known that last week, the domestic currency was the hardest-hit among Asian currencies which suffered due to a strong US dollar and emergence of macroeconomic headwinds.
According to Kotak Institutional Equities, Indian Rupee finds itself in a quadrilateral of fire. There are four factors that hamper the performance of India rupee, as per Kotak.
Firstly, monetary policy is becoming more and more restrictive in the developed world, primarily in US.
Secondly, higher oil prices is feeding into cost levels in the economy, prompting RBI to hint at more rate hikes down the road.
Thirdly, political risk premia remains elevated in a pre-election year.
Lastly, equity risk premia is low, which means, that expensive valuations in local equity markets keeps FPIs disinterested.
On Friday, the benchmark Sensex indices finished at 35,622.14 above 22.32 points or 0.06%, whereas Nifty 50 closed at 10,817.70 up 9.65 points or 0.09%.
Meanwhile, foreign investors removed Rs 1,374.23 crore cumulatively from equity, debt and hybrid market on Friday, as per NSDL data.
Anindya Banerjee, Analysts at Kotak said, “Out of the above four factors, possibly oil remains the most dynamic one. Over the next few weeks, if oil prices were to fall sharply, for example Brent below 68-70 dollars a barrel, it can offer a major respite to INR.”