Mumbai: The Indian rupee on Friday closed near nine month low against the US dollar, after foreign institutional investors (FIIs) continued to sell in the local equity and debt markets following the global trend amid prospects of an interest rate hike by the US Federal Reserve.
This was the four out of five trading sessions when the rupee closed lower.
The rupee closed at 68.14 a dollar— a level last seen on 29 February, down 0.45% from its previous close of 67.83. The home currency opened at 68.01 against the US dollar and touched a low of 68.24, a level last seen on 1 March. So far this year, it fell 3%.
“Following Fed chair’s testimony, the odds of a December US rate hike has increased, adding fuel to dollar’s rally. This dragged down currencies of emerging markets, already under pressure of fund outflow following US electoral outcome,” said Anand James, Chief Market Strategist, Geojit BNP Paribas.
However, a December rate hike will not surprise markets into further weakening of rupee, and there are no clear indications from yesterday’s testimony regarding the pace of further rate hikes, James added
Since 9 September to 16 September, FIIs sold $1.25 billion in equity and from 11 September to 16 September, FIIs sold $1.54 billion in debt. FIIs have sold $1.82 billion in debt and bought $5.57 billion in equity till date this year.
The benchmark 10-year government bond yield closed at 6.429%, compared to Thursday’s close of 6.42%. Bond yields and prices move in opposite directions.
“The demonetisation-driven cash crunch that is playing out in India will paralyse economic activity in the short term. Hence, we expect GDP growth to decelerate from 6.4% in 1HFY17 (as per Ambit est.) to 0.5% YoY in 2HFY17 with a distinct possibility of GDP growth contracting in 3QFY17” Broking frim Ambit Capital said in 18 November note to its investors .
“However, from 3QFY17 until 4QFY19, we expect a strong ‘formalisation effect’ to play out as nearly half of the non-tax paying businesses in the informal sector (40% share in GDP) become unviable and cede market share to their organised sector counterparts. We expect this dynamic to crimp GDP growth in India in FY18 as well and hence we cut our FY18 GDP growth estimate to 5.8% YoY (from 7.3%)”, the report added.
Asian currencies declined as the dollar strengthened after Federal Reserve Chair Janet Yellen indicated the central bank is close to raising interest rates.
A gauge of the greenback rallied to the highest since February after Yellen told lawmakers Thursday that a rate hike “could well become appropriate relatively soon” as the U.S. economy continues to gain traction, Bloomberg reported.
Taiwan dollar was down 0.71%, South Korean won 0.59%, Malaysian ringgit 0.54%, Philippines peso 0.5%, Indonesian rupiah 0.41%, Japanese yen 0.25%, Singapore dollar 0.2%, Thai Baht 0.19%, China Renminbi 0.1%. However, China Offshore spot was up 0.07%.
India’s benchmark Sensex index closed at 26,150.24 points, down 0.3% or 77.38 points from its previous close. So far this year, it has gained 0.17%.
The dollar index, which measures the US currency’s strength against major currencies, was trading at 100.96, up 0.07% from its previous close of 100.89.