Rupee weakens to fresh 15-month low against US dollar. Here’s why
Mumbai: The Indian rupee on Wednesday pared half of its losses but still closed at a fresh 15-month low against US dollar due to concerns of outflows by foreign investors in local assets amid surge in crude oil.
The rupee closed at 67.27 against US dollar, down 0.29% from its previous close of 67.08. The currency opened at 66.34 and touched a low of 67.48—a level last seen on 2 February 2017. Year to date, it lost over 5.2%.
Since start of April, foreign investors in both equity and debt sold a combined $3.85 billion. So far this year, they have bought $790.60 million and sold $2.26 billion in equity and debt markets, respectively.
Oil prices rose to the highest level since late 2014 after US President Donald Trump said the US will withdraw from the Iran nuclear deal, a move that was seen as raising the chances of another Mideast war and testing Washington’s relations with Europe.
The 10-year bond yield ended at 7.709%, up 13 basis points, from its previous close of 7.581%. Bond yields and prices move in opposite directions.
Traders are cautious as the main parties of Karnataka election have promised farm loan waivers in case they have elected to the power. Earlier, Andhra Pradesh and Telangana in 2014, Tamil Nadu in 2016, Uttar Pradesh, Maharashtra, and Punjab in 2017 announced loan waiver.
Analyst believes that this may lead to increase in fiscal burden of the states over the medium term, along with inflationary impact and higher burden on the bank’s books. Karnataka elections are due on 12 May and the poll results will be out on 14 May.
“With elections looming, the Reserve Bank of India (RBI) may also have to act proactively to temper bond and FX market volatility through various interventions, beyond regular FX intervention. We expect tightening risks to remain on the table” said Radhika Rao economist at DBS Bank.
Benchmark Sensex Index rose 0.29% or 103.03 points to 35319.35 points. Year to date, Sensex gained 3.7%.
Asian currencies were trading lower. South Korean won was down 0.5%, Thai baht 0.41%, Taiwan dollar 0.4%, Japanese yen 0.34%, Indonesian rupiah 0.23%, Philippines peso 0.19%, Singapore dollar 0.13%, Malaysian ringgit 0.13%.
The dollar index, which measures the US currency’s strength against major currencies, was trading at 93.187, up 0.07% from its previous close of 93.12.
Bloomberg contributed to this story