The rupee fell below 56 to the dollar to its lowest in nearly two weeks, tracking global gains in the dollar as upbeat US data cooled expectations of monetary easing, Reuters reported.
At 12:02 pm, the rupee was at 55.97/98 to the dollar compared to its Tuesday close of 55.65/66. It fell to a low of 56.0250 during the session, a level last seen on August 3.
Adding to the currency’s decline was a fall in the stock market. Moreover, the PM in his independence day speech made no reference to reforms to fix the economy and get things moving again.
On Tuesday, the rupee had fallen to its lowest in a week, after the country’s trade deficit widened in July and core inflation also witnessed a spiral.
According to the government data, the country’s exports declined 4.8 percent year on year to $22.4 billion in July due to a global demand slowdown.
Imports too contracted during the month by 7.61 percent to $37.9 billion, leaving a trade deficit of $15.5 billion, Director General of Foreign Trade Anup Pujari was quoted as saying in a PTI report.
“Reforms are required to reduce the twin deficits and to boost growth through investment in infrastructure” brokerage UBS said in note.
Though the country’s WPI inflation for July came in below expected at 6.87 percent, there has been a worrying increase in non-food manufacturing (core) inflation rate, which is key to the RBI’s policy stance.
According to brokerage Anandrathi the figure was 5.4 percent, compared with 4.85 percent in June. The rise is likely to defer a rate cut by the central bank.
Going forward, the rupee will be impacted by the growth outlook for the economy and foreign fund inflows into the stock market.
The RBI has already lowered its estimates for the current financial year to 6.5 percent. Various brokerages and investment banks have also cut their estimates, some even expecting a growth of around 5.8 percent, raising concerns over a deficient rain fall.
Though foreign fund inflows have been robust this year so far, the trend is unlikely to sustain given the grim growth outlook.
With inputs from Reuters