Reasons why Indian rupee will see a further dip

Dubai - The rupee opened on a positive note by inching 15 paise higher at 72.30 against the dollar.

A new day, a new low. The Indian rupee, along with other currencies of emerging markets, sank to a fresh low on Monday again due to a global trade war, rising domestic fuel prices, and growing trade deficit as key concerns for the rupee.
On Tuesday, the rupee opened on a positive note by inching 15 paise higher at 72.30 against the dollar amid increased selling by banks and exporters. Besides, dollar's weakness against some currencies overseas including the euro also supported the rupee, dealers said.

Analysts and industry executives believe that emerging markets' currencies will remain under pressure and slide further in the coming months, mainly due to global factors. They expect the Indian rupee to hit the 20-level in the next few days, but say it will face resistance at this level as foreign fund inflows into India are expected to begin, giving support to the rupee.


Rajiv Raipancholia, CEO, Orient Exchange, says that Indian rupee can depreciate to 20 against the dirham but it will face resistance at this level because market expects foreign fund inflows into India to start at this stage. "I don't anticipate rupee to touch 21 against dirham," he said.

Adeeb Ahamed, managing director, Lulu Financial Group, said it was a bit difficult to gauge the movement of rupee in such a volatile currency situation. However, it might test the 20-level in the coming few days as it has already tested 19.78 against the dirham on Monday.

"The rupee is widely traded under NDF (non-deliverable forwards), which has assisted in the slide of the currency. Moreover, the Pakistani rupee has already fallen to 122 against the dollar from 108-110 levels, while the Sri Lankan rupee has tested 162 from 135-138 levels against the US dollar," Ahamed said.

The Indian rupee, according to Ahamed, is tracking global cues along with the rising oil prices, which have been steadily increasing in the past 3-4 months, and added to short-term fiscal pressure. With India importing a large swathe of its fuel needs, rising oil prices will naturally lead to a higher dollar bill which in turn weakens the Indian rupee.

Raipancholia attributed widening current account deficit, high crude price, the fallout of trade war between US and China, interest rate hike by US and subsequent withdrawal of US dollar funds from emerging markets by FIIs as main reasons for the rupee's decline.

On Monday, Moody's Investors Service warned that ongoing free fall of the rupee is credit negative for Indian companies, especially for those that generate revenue in rupees but rely on dollar debt to fund their operations and have substantial dollar-based expenses.

The Indian central bank has been intervening in the currency market, albeit in a restrained manner, leading to a drop in India's forex reserves to $400 billion from $426 billion in mid-April.

India's current account deficit in the April-June period stood at 2.4 per cent of the gross domestic product (GDP), against 1.9 per cent of the GDP in the January-March quarter of 2017-18, according to data released by the Reserve Bank of India.

The south Asian country's current account deficit is also expected to widen to $17.45 billion for August as compared to $18 billion in July and much worse than the average $15 billion in April-June quarter amidst higher oil prices.

India on Monday announced plan to tap its citizens overseas to improve remittances inflow.

Promoth Manghat, group CEO and executive director of Finablr and CEO of UAE Exchange, also sees further slide in Indian currency and blamed rupee's depreciation to US-China trade war, rate hikes by the US Fed, economic turmoil in Turkey and Argentina, US sanctions plan against Iran, rising oil prices and India's widening trade deficit.

"With crude oil prices and global political conditions dictating the status of the Indian currency in the next few months, we foresee the Indian rupee to further slide down in the last quarter of the year and giving expats another opportunity to remit more," he said.

The rupee has depreciated 14.13 per cent year-to-date against UAE dirham. Among other emerging market currencies, Sri Lankan rupee has lost six per cent, Pakistani rupee has plunged 11.88 per cent, Thai baht by 1.5 per cent.

In another important development, a new analysis by Nomura Holdings found that seven emerging economies faced risk of an exchange-rate crisis -- Sri Lanka, South Africa, Argentina, Pakistan, Egypt, Turkey and Ukraine.

With five of the seven already in a currency crisis or a programme run by the International Monetary Fund, that leaves South Africa and Pakistan as the standouts, it said.

waheedabbas@khaleejtimes.com

Equity indices plunge; Sensex down nearly 400 points
The key Indian equity indices traded on a negative note on Monday afternoon owing to weak rupee and negative global cues, with the benchmark Sensex losing nearly 400 point so far.
Both the S&P BSE Sensex and the NSE Nifty50 fell around one per cent so far.
Globally, markets sentiments were subdued on concerns that the US might impose further tarrifs on Chinese imports.
Among the sectoral indices, heavy selling activity was witnessed in banking, auto and oil and gas counters.
Around 1.21pm, the wider Nifty50 on the National Stock Exchange traded 11,469.35 points, lower by 119.75 points or 1.03 per cent from the previous close.
The BSE Sensex, which had opened 38,348.39 points, traded at 38,003.89 points, lower by 385.93 points or 1.01 per cent from the previous close of 38,389.82 points.
It has touched a high of 38,354.52 points and a low of 37,967.08 points so far.

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