Dubai: The Indian rupee (INR) slumped to a six-month low against the US dollar, tracking a rout in domestic equities.
The rupee fell to a six-month low of 72.27 against the greenback compared to its previous close of 71.56 and closed at 72.17 against the US dollar, after trading in the range of 71.81 to 72.27 on Friday.
In the UAE, the dirham fetched up to 19.75 on Friday noon and eventually stabilized to 19.62.
Other Asian currencies were also weakened as investors dumped emerging market assets to seek refuge in US treasuries and other assets like gold amid the rapid spread of coronavirus epidemic outside China.
The sharp fall in rupee was driven largely by the sell-off on Indian stock market. The benchmark Sensex fell about 1,450 points on Friday in its worst one-day selloff in recent times.
Under pressure
Rupee has been under pressure amid selling of Indian equities by foreign institutional investors, who remained net sellers in the capital market. Foreigners sold a net $934 million of shares from Monday through Thursday. They also unloaded $761 million of bonds, the most since April.
World markets sank deeper into the red, posting their worst week since the 2008 financial crisis, on fears that the virus outbreak could tip the global economy into a recession.
The list of countries hit by Covid-19 grew to 57, with New Zealand, Nigeria, Azerbaijan and the Netherlands reporting their first cases.
Continuing its downward spiral for the sixth straight session, the 30-share BSE Sensex ended 1,448.37 points, or 3.64 per cent, lower at 38,297.29.
This was the benchmark's second-worst drop in absolute terms after August 24, 2015, when it had plunged 1,624.51 points.
Similarly, the broader NSE Nifty sank 431.55 points or 3.71 per cent to end at 11,201.75.
Looking ahead, the downward pressure on rupee was somewhat hedged by the by easing crude oil prices. International benchmark Brent crude slipped below $50 a barrel for the first time since December 2018.
Analysts said easing crude oil prices and weakening of the American currency in the overseas market supported the rupee from a much sharper fall against the dollar.
Investor sentiment remained fragile amid sustained foreign fund outflows and concerns over the impact of corona virus outbreak on the global economy, traders said.
Weak fundamentals
The medium term outlook for the Indian currency has been under pressure due to the slowing economy and the twin deficits.
Earlier this month rating agency Moody’s reduced its 2020 growth forecast for India to 5.4 per cent from 6.6 per cent predicted earlier, suggesting slower recovery. The agency cited domestic factors but also mentioned the impact of the coronavirus outbreak. In the fiscal year 2021, the Indian economy is expected to grow by 5.8 per cent versus 6.7 per cent predicted earlier. Moody’s said that India’s economy had slowed dramatically in the last two years.
“Among emerging market countries, we have materially revised downward our growth forecasts for India, Mexico and South Africa. In all four cases, the revisions reflect wholly domestic challenges, rather than external factors,” Moody’s said.
Moody’s outlook is way below that of competitor S&P, which expects 6 per cent growth in 2020 and 7 per cent in 2021.
