The rupee is trading at 56.38/39, near the record low of 56.52 hit before the Jan-March GDP data on increased capital outflows and strong demand from importers for the greenback.
India’s economy just grew at 5.3 percent in the January-March quarter, well below expectations for 6.1 percent expansion.
However, Ananth Narayan, managing director – regional head of fixed income & currency trading – South Asia, Standard Chartered Bank, said the rupee plunge is not just India-specific. Strong global risk off is majorly impacting the rupee, he said. Hence, he doesn’t see the Reserve Bank of India reacting too harshly in the form of cutting interest rates. “Ever since we broke that critical 54.30 December lows of last year, the rupee has been vulnerable and it doesn’t help with the global context being what it is,” he said.
The fact that oil is now at $103 per barrel and has come off substantially is a good sign. Also trade deficit has pulled down a little bit in the first two months of this fiscal and there are some macro corrections which can come through as a result of the dollar-rupee being where it is, said Narayan.
The rupee’s fall to all-time lows has set up expectations about potential intervention from the Reserve Bank of India, though most traders said they had not spotted any significant dollar-selling via state-run banks on Thursday.
“In a gaining dollar scenario, it is difficult for any currency to hold its position. Exporters also seem to be holding back and positioning for a further fall,” said Naveen Raghuvanshi, associate vice president of foreign currency trading at Development Credit Bank.
The falls have been sparked by a faltering euro as investors worry that Spain will need outside assistance to fix its public finance and banking system.
The rupee’s previous all-time low of 56.40 had been set just a week ago, the culmination of a string of record lows for the local currency, despite suspected frequent intervention from the RBI in both spot and forward markets.
The rupee is the worst-performing Asian currency this year, and is down more than 6 percent in May, and on course to its biggest monthly fall in six months.
With inputs from Reuters