- Rupee plunged by 109 paise from Friday's close of 68.83 against dollar
- Rupee fell sharply following other emerging market currencies
- Investors preferred safe-havens dollar, yen after Turkish lira crashed
The rupee registered a sharp decline of 109 paise or Rs 1.09 to close at 69.93 against the US dollar on Monday - the biggest single-day drop in the past five years. That marked the Indian currency's all-time closing low against the greenback. Other emerging market currencies plunged as investors preferred safe-havens such as the US dollar and the yen after a plunge in the Turkish Lira. The rupee traded in the range of 69.93-69.41 against the American currency before closing at the day's lowest point. The rupee had settled at 68.84 against the US dollar last Friday.
Analysts attributed the plunge in the rupee to the Turkish currency crisis and expected the rupee to fall further to below 70 per dollar.
"The current drop in rupee is mainly due to the crisis in Turkey. The dollar index has strengthened beyond 96 levels reflecting its safe haven status due to possible domino effect of the Turkey crisis on other financial institutions," said Salil Datar, CEO and executive director, Essel Finance Forex.
"Given the prevailing risk aversion in the global markets, we don't rule out that the rupee will briefly cross 70/dollar before retracing to 69/dollar levels," said Aditi Nayar, principal economist at credit ratings agency ICRA.
Going forward, analysts will closely watch the movement of emerging market currencies against the US dollar and crude oil prices. The Reserve Bank of India was seen intervening to stem a sharp fall in the rupee, news agency Reuters cited two dealers as saying. The RBI is likely to assess the trend in the rupee vis-a-vis the emerging markets currency pack, Ms Nayar said.
The lira has fallen about 45 per cent against the US dollar so far this year on worries over Turkish President Tayyip Erdogan's increasing control of the economy and a deepening diplomatic rift with the US.
"If all EM currencies are depreciating, the rupee must weaken to protect export competitiveness," Ms Nayar added.
Most global currencies except Japanese yen and Swiss franc weakened against the dollar.
"The rupee can see further dip till 70.25 levels on the other side. We could be seeing 69.60 levels if today's favourable inflation data is backed by a moderation in the awaited trade deficit figures," Mr Datar further said.
Government data on the same day showed that retail inflation - determined by Consumer Price Index (CPI) - eased to 4.17 per cent in July. That strengthened views that the Reserve Bank of India (RBI) would keep interest rates on hold at its review in October, after raising them by 25 basis points each in both bi-monthly consecutive meetings. Consumer inflation in June was revised to 4.92 per cent from a provisional 5 per cent previously, the Central Statistics Office (CSO) said.
Meanwhile, stock markets continued their fall to a second straight session. The BSE benchmark index Sensex shed 224 points to close at 37,644 while the NSE Nifty settled 73 points lower at 11,355, ahead of release of CPI data.
(With agency inputs)