Indian rupee drops further after budget

Dubai - Strengthening of dollar against some currencies overseas weigh on currency.

The Indian rupee plunged by 48 paise on Monday to Rs71.73 per dollar or Rs19.54 per dirham in the aftermath of the interim budget and ahead of the Reserve Bank of India's policy review meet, signalling its proclivity to head further south with crucial parliamentary pools looming.
Forex traders said strengthening of the dollar against some currencies overseas weighed on the rupee. On Friday, as the interim budget was unveiled, the rupee settled 17 paise lower at 71.25 against the US dollar.
Economists warned Prime Minister Narendra Modi's pre-election budget, which includes handouts for farmers and tax cuts for the lower middle class, is likely to weigh on whoever forms the next administration.
Pradeep Unni, head of strategic business development at Richcomm Global Services DMCC, said the rupee extended its slippage post the interim-budget.
"Markets are highly concerned about a fiscal slippage after the interim budget unveiled some big populist measures ahead of the general elections. Implementation of such populist means may result in bigger fiscal deficit, which could prompt the rating agencies to downgrade India's sovereign ratings," he said.
India is also heading to a general elections in less than three months and political framework may change a lot and that could result in Increased currency volatility, said Unni.
"The rupee looks to be heading to the 73.00/73.50 levels in the very near term as the dollar gains strength and political chaos build up as the elections near. It is always ideal to hedge the Indian rupee to avoid unnecessary loss of profits due to currency movements."
Forex traders said sentiments were muted ahead of the next meeting of the RBI's Monetary Policy Committee scheduled between February 5 and 7.
Most other Asian currencies also edged down in muted trade as the Chinese Lunar New Year holidays kept volumes low. Many regional currencies were unable to shake off Friday's losses after China's factory activity contracted the most in almost three years, further fuelling concerns about demand from Asia's largest economy.
The Indian rupee was an exception, losing about 0.6 per cent to the dollar to its weakest level since mid-December. "Much of the pressure on the rupee has come from concerns about the country's budget deficit after the government delivered a voter-friendly interim budget on Friday," currency analysts said.
The rupee has recovered nearly 6 per cent after touching a record low of 74.485 per dollar or Rs20.29 per dirham on October 11. A poll of more than 65 analysts between January 2-8 showed that the rupee will weaken again after witnessing about nine per cent fall in 2018 - the biggest decline since Modi took office in 2014.
"There's nothing to be greatly optimistic about the rupee. There are lots of uncertainties, both on economic and political fronts lingering as we enter into 2019," one analyst said.
Foreign funds bought shares worth Rs13.16.8 billion from the capital markets on a net basis on Friday, while domestic institutional investors sold shares worth Rs50 million, provisional data showed.
The global benchmark, Brent crude oil was trading at $62.73 per barrel, lower by 0.03 per cent.
Meanwhile, domestic equity market opened on a lower note. The 30-share BSE benchmark Sensex, was trading at 35,368.12, down 101.31 points in early trade. The wide-based Nifty was also trading down by 32.25 points at 10,861.40.
- issacjohn@khaleejtimes.com

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