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Business News/ News / India/  Rupee recovers from all-time low
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Rupee recovers from all-time low

The rupee had touched a record low of 74.50 earlier today
  • The fall in rupee was arrested because of the narrowing of current account deficit
  • The rupee has declined 4.1% so far this yea. Photo: MintPremium
    The rupee has declined 4.1% so far this yea. Photo: Mint

    Indian rupee on Friday pared losses and strengthened against the US dollar amid a recovery in global markets. Indian markets also recovered nearly 1% from its lows hit at open. Stock exchanges had halted for 45 minutes after the benchmark Nifty and Sensex hit the 10% lower circuit.

    The currency was trading at 74.05 a dollar, up 0.15% from its previous close of 74.22.

    The Indian rupee had touched a record low of 74.50 earlier today, breaching previous low of 74.48, hit in October 2018 as risk appetite amid escalating worries about the impact of rapidly spreading novel coronavirus infections. The rupee has declined 4.1% so far this year.

    Analysts said the fall in rupee was arrested because of the narrowing of current account deficit, a decline in retail inflation, and an expansion in factory output along with new measures announced by the Reserve Bank of India (RBI) to boost liquidity.

    India’s current account deficit narrowed to the smallest in 14 quarters during October-December, with the shortfall at $1.4 billion, or 0.2% of gross domestic product compared with $2.5 billion deficit estimated by a Bloomberg survey. The CAD in the previous quarter was at $6.5 billion, or 0.9% of GDP.

    "The backdrop of lower oil prices and narrowing current account deficit bodes well for the rupee and we expect it come back to 70-72/USD once the risk-off subsides," a Bloomberg report quoted a Bank of Baroda note.

    Retail inflation eased to 6.6% in February from 7.6% in January, marking the first step towards a downward trajectory. Core inflation fell to 3.9% from 4.3% in January, in part due to lower oil prices.

    Meanwhile, industrial production expanded 2.0% in January from an upward revised 0.1% in December. Analysts expect the recovery will face strong headwinds in coming months owing to COVID-19-related disruptions.

    The RBI on Thursday announced that it will undertake a six-month US dollar sell/buy swaps to provide liquidity to the foreign exchange market. The swaps will be conducted through the auction route in multiple tranches

    "The lower inflation print should be welcome news for the Reserve Bank of India (RBI), which will now look to focus exclusively on tending to the twin shocks – to global growth and domestic financial stability – the latter triggered by the fall of a major private sector bank," said Nomura Research in a note to its investors.

    "We believe the RBI will announce an ‘easing package’ involving both, conventional measures (rate cut of 50 bp by Q2) and the unconventional (liquidity injection measures, macroprudential easing). This ‘package’ could possibly be delivered before the 3 April meeting, in light of the emergency situation domestically and globally," the Nomura Report added.

    (Bloomberg contributed to the story.)

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    Published: 13 Mar 2020, 11:14 AM IST
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