Indian rupee tumbles to new low

The Indian rupee, which hovered around 68.5 to a dollar until a month ago, went into a tailspin this month.

The Indian rupee tumbled to a new record low of 71.58 against the dollar or 19.50 per dirham on Tuesday on the back of negative global signals and high crude oil prices.

Analysts expect the rupee, the worst-performing currency in Asia, to hit the 72 level per dollar or 19.61 per dirham within days if the current situation persists.

Currency dealers said besides strong demand for dollar from importers, capital outflows too weighed on the domestic currency. Global funds have pulled $6.3 billion from local bonds so far this year.

A sharp rally in global crude prices further dampened the overall trading sentiment. Benchmark Brent crude oil was trading at $79.26 a barrel in early Asian trade.

The Indian rupee, which hovered around 68.5 to a dollar until a month ago, went into a tailspin this month, falling by nearly five per cent over the last one month.

A top Indian finance ministry official said the rupee would stabilise on its own as there were no domestic factors contributing to this depreciation.

"Rupee has depreciated primarily on trade war fears and rise in global crude oil prices. The government does not have control over these...so there is only so much we can do," the official said.

According to Kotak Securities Ltd, signs of a sustainable recovery in the rupee versus the dollar remain fragile.

"You may get a pullback, say to 69.70, but nothing beyond that," said Anindya Banerjee, a currency analyst at Kotak in Mumbai. "If oil refuses to fall, and with EM looking very brittle along with an escalating trade-war rhetoric, the template is looking negative for the rupee."

A slowdown in flows to local bonds and equity, and the political uncertainty ahead of next year's general elections will also weigh on the currency, said Banerjee, who expects the rupee to reach 73 per dollar by end-December.  

Moody's Investors Service last week said India, the world's fastest-growing oil user, risks missing budget targets because of higher energy costs. While high oil prices stoke inflation, a spike also weakens the rupee, which causes foreigners to sell Indian assets.

India's current account deficit (CAD) is typically vulnerable to any rise in international crude oil prices as the country imports around 85 per cent of its oil requirements. Rising global oil prices, when coupled with a sharp depreciation in the rupee, creates a double blow for the CAD as the country's import bill spikes even though the volume of import may remain the same.

- issacjohn@khaleejtimes.com