MUMBAI: The Indian rupee fell to a record low of 68.8650 on Thursday, pressured by a rallying US dollar, capital outflows from emerging markets, and worries about the country’s demonetisation drive.
Despite repeated interventions by the central bank to slow the slide, the rupee breached its previous low of 68.85 to the dollar hit in August 2013, when India was mired in its worst currency crisis in more than two decades.
The Reserve Bank of India intervened again in the afternoon, after spending around $500 million in the morning, eventually pushing the rupee to a close of 68.73, down from its 68.58 close on Wednesday.
A government spokesman attributed the rupee’s falls to the recent slide in emerging market currencies, which has also seen the yuan hit 8-1/2 year lows.
The rupee has fallen around 3 per cent this month, its biggest fall against the dollar since August 2015, though it has fared better than many other emerging market currencies since Donald Trump’s shock win in the US presidential election.
Analysts said they expected the rupee to remain under pressure, with a fall to as much as 70 in the near-term, depending on global conditions.
“This is a dollar strength story and we need to depreciate against developing markets to maintain the competitiveness of the exchange rate,” said Ashish Vaidya, head of trading at DBS Bank in Mumbai, the financial capital.
“The RBI has not been protecting any particular level, but has been containing volatility.” In 2013, pressure on the current account triggered heavy rupee selling, but this time India is seen as being far better positioned to resist outflows from investors attracted by higher US interest rates.
Expectations that President-elect Trump will pursue an expansionary fiscal policy that will drive inflation higher and lead to higher US interest rates are behind rising US yields that have attracted investors to the dollar.
Published in Dawn, November 25th, 2016