The Indian currency gained some momentum on Wednesday as it recovered from a 16-month low to trade below the psychological 68-mark against the US dollar. The rupee on Tuesday plunged 56 paise, the second biggest single-day fall of 2018, before closing at 68.07. This is the lowest closing for the rupee since January 24, 2017 when it had ended at 68.15 against dollar. The rupee today ended 27 paise higher at 67.80 per dollar against previous close of 68.07 on fresh selling of the US currency by exporters and banks.
Here are key things to know about the rupee-dollar trade:
It is believed that the Indian rupee stemmed some of its losses after the Reserve Bank of India’s (RBI) intervention. This is the Reserve Bank’s second intervention in two days. “It looks like RBI is in a mood today,” said a senior dealer at a state-run bank, estimating that within the first 10 minutes the RBI might have sold $300 million to $400 million proactively to prevent any sharp fall in the rupee.
India’s foreign-exchange reserves have fallen by more than $7 billion in the past three weeks, another sign that the RBI may have intervened to support the rupee. The currency has declined 4 per cent this quarter, thus becoming Asia’s worst performer in 2018, news agency Bloomberg reported.
As per the RBI data, the country’s forex reserves fell by $1.426 billion to $418.940 billion in the week to May 4.
Rising global crude oil prices played a vital role in the weakening of the rupee. The Brent crude futures and US crude futures (financial oil benchmarks) remained close to their November 2014 highs of $79.47 and $71.92 a barrel respectively. India being a net crude oil importer, a rise in prices can affect the import bill and disrupt the fiscal position, derailing growth potential.
After the uncertainty over the formation of government in Karnataka, domestic equities witnessed a largely muted reaction.
Sharply rising US dollar yields have boosted the dollar on international exchanges, and the rupee was also coming under pressure from firm crude oil prices that will weigh on the country’s already widening trade deficit. April trade deficit widened to $13.72 billion from $13.25 billion a year ago.>