Mumbai: The Indian rupee on Thursday closed weakened past 70 a dollar mark first time after the country’s trade deficit widened to a five-year high as petroleum imports surged. The rupee ended at 70.16 a dollar, down 0.38%, from its Tuesday’s close of 69.89. The currency opened at 70.25 and touched an all time low of 70.40 a dollar. On Wednesday, markets were closed due to Independence Day.
The 10-year bond yield ended trading at 7.863%, from its previous close of 7.818%. Bond yields and prices move in opposite directions.
“In recent months, global activity indicators such as global PMI and world trade volumes have moderated. This along with an overvalued rupee could weigh on India’s exports and thus growth recovery. As a result, we think the trade balance will likely remain elevated, albeit lower than the July print. Widening trade deficit amid heightened global uncertainty is likely to keep the INR (rupee) under pressure," said Edelweiss Securities in a 14 August report to its investors.
Trade deficit widened to $18.02 billion in July, government data showed on Tuesday. That compared with the $15.7 billion median estimate in a Bloomberg survey of 24 economists and $16.6 billion in June. The last time the trade deficit was wider was in May 2013 at $19.1 billion, according to data compiled by Bloomberg.
Merchandise exports last month rose to $25.77 billion from a year ago, while imports rose 28.81% to $43.79 billion. Oil imports surged 57.41% to $12.35 billion.
“We believe that downside risks to export growth remain due to weaker global growth outlook, although currency depreciation is a tailwind at the margin and could provide some relief to exporters (who are recovering from the tumult of slow resolution of stuck GST refunds and tighter trade finance). Import growth, meanwhile, is likely to remain elevated in the near-term due to high oil prices, but we expect weak rupee and domestic slowdown to moderate imports in coming quarters", said Nomura Research in a report to its investors.
“Overall, we expect the current account deficit to widen to 2.8% of GDP in FY19 (year ending March 2019) from 1.9% in FY18 (Figure 7). We expect balance of payment (BOP) funding to remain a challenge in FY19 as the basic BOP (current account + net FDI) is negative and portfolio flows also remain negative", Nomura Research report added.
Benchmark Sensex Index fell 0.5% or 188.44 points to 37,663.56.
Traders will keep an eye on the release of minutes of Reserve Bank of India’s policy meeting held on 1 August due later today after 5.30pm.
“The RBI’s minutes due today will be backward looking and wont capture the recent escalation in financial markets volatility. Nonetheless, the members were likely cautious on the direction of core inflation, risk of generalised price pressures, expansionary fiscal policies, closing output gap and rupee weakness, at the margin, which prompted their hand to pre-emptively hike rates in August despite an anticipated moderation in inflation July onwards", said Radhika Rao economist at DBS Bank.
“Inflationary risks have receded for the short-term helped by base effects and seasonal factors, but rupee direction and oil threaten to harden inflationary expectations. The policy committee front-loaded rate hikes, but more increase is likely if the financial markets sell-off intensifies (as rupee slips to a record low) and core inflation proves sticky. Regional central banks have also been on the defensive, following BSP’s 50bp hike this month and BI’s surprise move yesterday" Rao added.
So far this year, the rupee has weakened 9%, while foreign investors have sold $140.10 million and $5.34 billion in equity and debt markets, respectively.
Most Asian currencies rose as news of a surprise resumption in US-China trade talks aided sentiment, while Turkey was thrown a financial lifeline by Qatar.
China Offshore was up 0.36%, China renminbi 0.29%, Singapore dollar 0.25%, Philippines peso 0.2%, South Korean won 0.16%, Thai Baht 0.15%, Malaysian ringgit 0.05%. However, Indonesian rupiah was down 0.28%.
The dollar index, which measures the US currency’s strength against major currencies, was trading at 96.294, down 0.1% from its previous close of 96.391.