rupee: What triggered Rupee’s lifetime low

The rupee plunged to a fresh low of 78.38 to the dollar on Wednesday as concerns over the global recession resurfaced, forcing investors to resell emerging market securities just two days after a member of the US Federal Reserve Reserve the probability of a pronounced – and immediate – economic collapse of the world’s largest economy.

The Reserve Bank of India (RBI) is estimated to have sold about $1.5 billion through a mix of spot and futures market interventions using multiple state-owned banks, market sources told ET. The central bank did not immediately respond to ET’s questions.

The rupee lost 0.4% on Wednesday and was the third worst performing Asian currency after the Philippine peso and Thai baht. On June 13, the local unit had hit 78.28/$, its previous all-time low.

“There is a lack of confidence among investors who are averse to taking new bets,” said Shushant Mohanty, general manager – treasury, . “The rupee is likely to remain volatile, reaching new lows during a period of fund outflows from India. Unless oil prices fall, fears of a global recession will continue to haunt financial markets.”

Loretta Mester, president of the Cleveland Fed, said on Sunday she would not predict a recession, sparking cheers across the markets. But indexes and exchange rates wiped out initial gains after industry magnates commented that the threat of a US recession was more real than ever.

The price of crude oil remains high amid an ongoing war between Russia and Ukraine. It probably won’t fall until OPEC, the top body of oil-producing countries, decides to increase production. In addition, there is a lot of speculation that the US could lift sanctions against Iran, a major oil-producing country. Brent crude has fluctuated in the broad range of $105-125 a barrel for the past four weeks.

High global oil prices are hurting India’s economy as the country imports four-fifths of its oil needs.

This calendar year, foreign portfolio investors netted $28.48 billion in local securities, data from NSDL shows.

“It can be seen that the central bank is reducing the loss of the rupee against the dollar,” said Anindya Banerjee, a currency analyst at Kotak Securities. “However, it is unlikely that this level (so sacred) will be held as India is not immune to global trends in emerging markets.”

The central bank has intervened on the foreign exchange market through two legs. While select banks were selling dollars on the spot, they supported such action through buy-sell swaps. The move protects forex reserves and helps maintain rupee liquidity in the system.

The one-month Bloomberg volatility index rose 17 basis points against a 26 basis point rise in the dollar renminbi meter, data collected by ETIG shows.

One basis point is 0.01%.

“The rupee has depreciated further than our expectations,” said Abhay Gupta, FX strategist at Bank of America. “Risks are still skewed towards more depreciation for INR as the fundamental outlook has deteriorated further, mainly due to higher oil and other commodities.”

At current spot levels, Bank of America expects the rupee to reach 81 by the end of the calendar year, revised from 79 earlier.

The rupee has fallen in the rankings this month. In June, it lost nearly a percentage point to become the fifth best performing Asian currency. About a week ago, it was the second best performing unit on the continent, losing about half a percentage point to the dollar, to the Chinese renminbi.

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