The Indian rupee hit a new low as the dollar strengthened, reducing demand for risky assets and causing investors to flee the country’s stocks.
On Monday, the rupee fell as much as 0.7 percent to 77.4337 per dollar, surpassing the previous all-time low of 76.9812 set in March. Stocks continued to fall, with the S&P BSE Sensex Index dropping 1.5 percent.
On Bloomberg TV, Ashhish Vaidya, head of treasury and markets at DBS Bank Ltd. in Mumbai, said, “It’s clearly about dollar strength, as well as a function of oil.” “As long as oil prices remain high, the rupee will remain under pressure.”
With increasing inflation and the potential of aggressive monetary tightening rocking global markets, the steps may exacerbate concerns about outflows after foreign funds yanked a record $17.7 billion from Indian equities this year. A unexpected rate hike by India’s central bank hasn’t been enough to keep the rupee from falling, as the country’s current-account imbalance widens.
India imports roughly 80% of its oil, and rising energy prices threaten to accelerate inflation and increase the country’s current-account and trade deficits.
The Reserve Bank of India’s “awareness of the need for urgency in normalising policy” has lent some weight to the cause. Siddharth Mathur and Chidu Narayanan of BNP Paribas said in a note. “However, because equities flows might outnumber interest-rate sensitive flows, a worsening in equity market sentiment as a result of quick tightening in domestic financial conditions poses a significant downside risk to the rupee.”
The RBI has been reducing the currency’s losses by utilising its foreign exchange reserves. For the first time in a year, the reserve pile fell below $600 billion, according to the most recent figures.