Abu Dhabi: India’s rupee is likely to plunge to record lows in the days ahead with a strong likelihood the South Asian currency would drop to 62 levels to the US dollar and 17 to the UAE dirham on the back of increased outflows from foreign institutional investors who have been dumping rupee-denominated assets in favour of the greenback, experts say.
Furthermore, the latest non-farm payroll data in the US, the world’s largest economy came far above analysts’ expectations, enabling the dollar to rise further against the emerging market currencies on Friday.
The data has raised the odds of the US Federal Reserve announcing a tapering of its $85 billion a month emergency bond-buying programme ‘quantitative easing’ in September, a scenario which has made the dollar bulls take long positions.
On Friday, the rupee dropped to an intra-day low of 60.59 rupees to the US dollar — near its record low of 60.76 on June 26 — as Indian importers bought dollars. Helped by intervention from the central bank, the Indian currency later pared some of its losses to close at 60.22 rupees to the dollar.
“The next support levels for the Indian rupee are at 61.70, 62.50 and 62.70 to the dollar. The Reserve Bank of India will need to intervene in the market next week to stem a further fall in the rupee,” Sajith Kumar P.K., chief executive at the Dubai-based JRG International told Gulf News.
Gaurav Kashyap, Head of Futures at Alpari ME, a currency brokerage based in Dubai told Gulf News: “The rupee is entering an unchartered territory because there’s a sell-off and we are seeing a lot off stop losses being triggered. We would expect the selling pressure in the rupee to ease off around 61-62 levels.”
He added; The rupee will braodly be trading in a range of 59-62 to the US dollar, until we see more concrete action from the RBI or the Federal Open Market Committee, or both. Along with keeping an eye on RBI and the FOMC, we will continue to watch the yield spread between the US and Indian sovereign bonds, a narrowing of which will continue to see inflows into the US dollar-denominated assets.”
As matters stand, India’s central bank has foreign exchange reserves of about $290 billion, only enough to cover imports for seven months. The Indian currency, which has fallen by more than 10 per cent in 2013, is the worst performing currency among major Asian countries.
Business leaders have been hoping that the RBI would cut interest rates when it meets on July 30 in an effort to spur growth, which is at a decade low of 5 per cent, but the falling rupee makes this more difficult. The RBI has lowered rates three times this year.
