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The rupee closed at a fresh low for a second consecutive day after it settled at 77.77 per dollar before going to 77.81 per dollar in intraday deals as risk-averse investors continue to pull out from emerging markets amid surging crude oil prices.
After flat opening, the Indian currency hit day’s low of 77.81/$ as compared to the previous close of 77.74/$.
“Sword is still hanging on the rupee amid persistent FII’s selling from EM’s leading to Asian currencies weakening, elevated oil prices, and revised upward inflationary pressure for coming quarters,” said Amit Pabari, managing director, CR Forex.
The Indian currency came under pressure after the US Federal Reserve started to tighten monetary policy to tackle high inflation. All major global currencies are facing inflationary pressure due to supply side issues and surge in oil prices following the Russian invasion of Ukraine in late February.
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The rupee depreciated over 2.5 per cent in the current fiscal year. The central bank has been intervening aggressively which slowed the pace of rupee’s depreciation.
“The only ray of hope for rupee presently will remain RBI who has actively and aggressively participated to protect rupee from the heat so far,” Pabari said.
Analysts expect there could be pressure on rupee as the current account deficit is likely to widen after global crude oil price went past above $100/bbl — first time after 2014.
India’s current account deficit (CAD) widened to $23 billion in the third quarter ended December 2021 (Q3FY22), which was 2.7 per cent of the country’s gross domestic product (GDP) due to higher trade deficit.
While announcing the monetary policy review on Wednesday, RBI Governor Shaktikanta Das said exports of both goods and services and remittances should help contain the current account deficit (CAD) at a sustainable level, which can be financed by normal capital flows.
“As on June 3, 2022, India’s foreign exchange reserves were of the order of $601.1 billion, which are further supplemented by a healthy level of net forward assets of the RBI,” he said, indicating that there is cushion available to support the currency.
