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The rupee reached its historic low of $ 69.10 in the morning due to soaring crude prices, while markets are confident that the $ 70 levels are not too far from the local currency.
The rupee would have further depreciated, but for the intervention of the Reserve Bank of India (RBI), which managed to strengthen the currency at its close at 68.7950 a dollar, a level last seen on August 28, 2013, which was the last closed record. The market is now "long" on the dollar and a new record close could be expected this week.
The immediate concern for the rupee is the sharp rise in oil prices. In one week, Brent rose from $ 72.5 per barrel to $ 77.3 per barrel in response to US sanctions against Iranian oil and other oil-producing countries that keep their production flat.
The tariff war waged by the United States also has concerns of refuge fears. This has led to emerging markets (EM) exits, including India. So far this year, about $ 7 billion of funds have been spent in India.
"India is taking in a double whim for sure.You can adjust to most other factors, but the rise in crude oil prices is a blow to India The problem is that you have to let your currency depreciate when others in the region are witnessing such falls, "said Aman Mahna, senior currency trader at FirstRand Bank
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The rupee has depreciated the most in the region, falling by 7.3% since the beginning of the year . However, almost all Asian and emerging market countries are letting their currency depreciate to protect their export competitiveness. The Chinese yuan has fallen to its all-time low against the US dollar and has fallen during the last 10 trading sessions to accommodate US-imposed sanctions on Chinese products.
Considering China's presence in the global interconnected trade of others will have a contagion effect, economists say. This contagion again pushes investors toward dollar badets, considered the safest badet clbades. The dollar is thus reinforced even more
The dollar index, which measures the strength of the greenback against major currencies, is up 3.34% in one year to 95, 2 levels.
The strength of the dollar automatically pushes the Indian rupee, which has deficits in its current and tax accounts. However, a good thing for the country is that its dependence on the dollar is marginal, and India should not be affected as much as the other countries in the region that have attracted a considerable amount of investment in dollars in their clbades of local badets, economists say.
"India's limited external vulnerability is supported by a relatively large domestic funding base for public debt, which contributes to the resilience of the economy by sheltering abrupt changes in financing conditions." external, "said the rating agency Moody's. "India's low dependence on foreign currency borrowings to finance its debt limits the risk that the depreciation of the currency will translate into lower debt debt," Moody said. . Policymakers in countries such as India and Indonesia (both of which are in deficit) are facing the clbadic "trinity impossible" of managing the exchange rate, liberalizing capital movements and an independent monetary policy, according to Radhika Rao, an economist at DBS Bank. "In addition to allowing currencies to adjust to the escalating global volatility, we believe that the respective central banks will become sensitive to the excessive risk of capital outflows and financial stability, regardless of the targeting mandate. of inflation, "said Rao. ] What this means is that the RBI can opt for more aggressive rate hikes, 25-50 basis points for the rest of the year, and at the same time engage in a foreign exchange intervention. As the sale of dollars on the market means the elimination of the liquidity of the rupee, the central bank would be forced to buy back more secondary market bonds to inject sustainable cash, Rao said. DBS Bank expects the rupee to reach $ 71. Barclays PLC expects the local currency to rise to 72.
Uncharted territory
With the rupee reaching its all-time low, the local currency is in unfamiliar territory and is generally treated by investors who invest for a long time.
simply means that people take bets on dollars not only for the spot, but on a longer time horizon. Typically, to break this, the central bank takes an equal opposite position in the forwards market. Thanks to a punctual intervention, the central bank gives a firm signal. The central bank intervened on the foreign exchange markets on Wednesday. The closing level, which was around the record low lower, may suggest that the RBI is okay if the rupee exceeds record lows.
The central bank has repeatedly stated that it would not let the rupee reach its all-time low, which was 68.87 a dollar up to now under normal circumstances. Thus, companies feared to take a long position on the rupee-dollar exchange rate. "Now, the rupee has crossed the" triple heading "of 68.90, which would push the whole world to spend a long time in dollars," said Abhishek Goenka, managing director of IFA Global. technical table where prices have reached the level three times, but had to withdraw. This is the position where long traders benefit. Reaching this level means that there is no point of view on the market and that the price may vary in any way. Despite the RBI's intervention, the rupee should miss 70 soon, Goenka said. "Importers are trapped and some exporters feel they have sold their dollars too soon, but there is no panic as such," Goenka said. According to the foreign exchange traders, the importers are not adequately covered in the long term, but in the short term, the coverage could have been adequate.
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