Sensex suffers more losses as rupee hits record low

Gladys Abbott
June 30, 2018

A regular and increasing demand for dollars from banking institutions and importers, as well as oil refiners, which follows higher crude oil prices, are keeping the rupee under pressure. Meanwhile, the risk of a global trade war has intensified concerns about a broad economic slowdown outside the United States that would hammer emerging markets.

Srivastava said the falling rupee would move the contribution of net exports to GDP growth, which has lately been low or negative, further in the negative direction.

India is the world's fastest-growing large economy in recent quarters, but the continued climb of oil prices could change that, so many investors are lowering their exposure to its currency. "As the regional underperformer, the rupee is down 7.4 per cent on a 2018 year-to-date basis.", said Radhika Rao, Economist, DBS.

Though some of the analysts view the Indian rupee to be not affected majorly from the global crisis, still it has emerged to be the weakest performing Asian currency so far this year with a decline of nearly 8% since the start of 2018.

India believes the current slide in the rupee will not be prolonged as it has adequate "firepower" of foreign exchange reserves to deal with the current volatility, a senior finance ministry official said.

"Weakening at this pace shatters confidence".

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India's foreign exchange reserves stood at $410.07 billion as of June 15, latest data from the central bank showed. Earlier this year, the Reserve Bank of India increased corporate-bond investment limits and relaxed rules for foreign owners of government bonds. "The pressure on INR is high, thus in the absence of major action from regulators, 70 levels can be seen", the head of currency and debt trading at a foreign bank, said. Oil imports has surged 25 per cent in last financial year (2017-18) to 108.7 billion from around $87 billion in the previous fiscal.

The strength of the dollar in the global market, against some foreign currencies, have weighed heavily on the Indian unit.

In the recent past, prices spiked after the U.S. asked its allies to end all imports of Iranian oil by November.

Shares of software service exporters such as Infosys rose 1.6 percent, while textile exporters such as Arvind Ltd gained 0.7 percent.

India's vulnerability is also underscored by its dependence on imports for oil.

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