Rupee hits historic low, hovers near 80/USD

Tribune News Service

New Delhi, July 14

The rupee edged closer to the historic low of 80-mark against the US currency on Thursday as it declined by a little over 18 paise to settle at 79.99 amid a stronger greenback in overseas markets.

79.99 Historic low

• At the forex market, the rupee started the day on a strong note and touched a high of 79.71 to a dollar in early trade
• The local unit lost momentum after the dollar surged to 24-year high levels against a basket of global currencies
• Some of the leading banks such as SBI were already quoting above 80 levels for selling the US dollar

At the interbank forex market, the rupee started the day on a strong note and touched a high of 79.71 to a dollar in early trade. The local unit lost momentum after the dollar surged to 24-year high levels against a basket of global currencies in the early European trade.

The rupee finally settled at the day’s lowest level of 79.9975 to a dollar, down by 18 paise over the previous close of 79.81. With India’s current account deficit expected to deteriorate in the current fiscal due to costlier imports and tepid merchandise exports, the rupee may slip below the 80-mark in the next couple of trading sessions. Foreign currency analysts say the rupee could well slip below Rs 81 to a dollar by the end of this month due to flight of foreign capital from stock exchanges, high oil and other commodity prices, and fears about slowing economic growth worldwide.

Much now depends on the outcome from the RBI’s initiatives to enhance forex inflows that have ranged from higher duty on gold imports to exemptions on foreign currency deposits and increasing the external commercial borrowings limit under the automatic route.

The immediate reason is the higher-than-expected June inflation rate in the US. In response, the Federal Reserve may hike interest rates, which will induce capital flight to the US from other countries, thus pushing down the value of their currencies. The Euro has been among the worst-hit and has now achieved parity with the dollar after ruling at 1.20 to a dollar some months ago.

A Finance Ministry review has already warned that global headwinds would continue to pose a downside risk to growth as crude oil and edibles, which have driven inflation in India, remain major imported components in the consumption basket.

The current account deficit (CAD), which was 1.2% of the GDP in 2021-22, is likely to expand to over 3% in the current fiscal. The widening of the CAD has depreciated the Indian rupee against the dollar by 6% since January this year.

To meet the financing needs of the widening CAD and rising FPI outflows, forex reserves have declined by $34 billion in the past six months.

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