Rupee Plunges, Returns To Below 72 Mark Against Dollar: 10 Things To Know

The decline in rupee came after weekend announcement by the government to contain the rupee fall failed to bring cheer to the Street.

Rupee Plunges, Returns To Below 72 Mark Against Dollar: 10 Things To Know

The rupee is down 13% against the dollar so far this year

The rupee declined sharply against the US dollar on Monday, snapping gains registered in past two consecutive sessions. The rupee fell 67 paise to close at 72.51 against the greenback. The decline came after weekend announcement by the government to contain the rupee fall and lower current account deficit failed to bring cheer to the Street. The government said late on Friday that it would take measures to cut down "non-necessary" imports, ease overseas borrowing norms for the manufacturing sector and relax rules around banks raising masala bonds, or rupee-denominated overseas bonds. Analysts doubt the measures would lead to any meaningful inflows amid an overall negative investment sentiment for emerging markets.

Here are five things to know about movement in the rupee against US dollar (INR vs USD):

  1. The rupee fell as much as 81 paise to hit an intraday low of 72.65 against the US dollar, before settling at 72.51 for the day.

  2. The rupee is still down around 13 per cent against the greenback so far this year, cementing its position as the worst performing Asian currency.

  3. Last Friday, the rupee had closed at 71.84 against the dollar, ahead of announcement by the government to contain the rupee and current account deficit.

  4. The government announced measures including relaxation in restrictions for foreign portfolio investors (FPIs) on investment in corporate bonds, permission to manufacturing entities to avail ECBs (external commercial borrowings) up to $50 million with a minimum maturity of one year versus the earlier period of three years, elimination of withholding tax on Masala bonds (as against 5 per cent earlier), and removal of caps on single group exposure for foreign investors.

  5. IFA Global, a forex advisory firm, said the measures announced by the government to contain rupee "lack purpose and intent".

  6. The measures "may not be able to bring in any meaningful inflows given the fact that overall investment sentiment for EMs is negative. So far no Masala bonds have been issued this fiscal year," IFA Global said.

  7. Analysts also said that return of trade tensions between the world's largest two economies, the US and China, will keep the currency markets under pressure.

  8. "Measures on curbing imports could work, albeit with a lag. As such, continued global trade tensions may end up offsetting the domestic announcements in the near term," said Nomura in a note.

  9. The domestic markets plunged on Monday, with the BSE Sensex closing more than 500 points lower. Equities in most Asian peers declined amid reports that the US could announce a new round of tariffs on Chinese imports later in the day, setting the stage for possible reprisals by Beijing.

  10. The rupee is likely to trade in a range of 72.40-72.90 with an upside bias going forward, IFA Global said.

(With agency inputs)



More News