Dubai: India rupee has slipped below 20 to the dirham. Right now, it is at 20.07. The lowest it has reached was 20.22 to the dirham, which was on October 9, 2018.
The pressure is likely to continue until the country’s central bank decides what to do to counter the virus impact on the country’s economy. "The Reserve Bank of India has mentioned it is closely monitoring the global as well as domestic situation regarding the impact of the coronavirus," said Anthony Jos, Executive Director at Joyalukkas Exchange.
"The rupee was already stressed and volatile because of the coronavirus situation and sell-offs by investors in risky assets. There was sustained foreign fund outflow with investors seeing safe havens in US Treasuries."
Should NRIs wait another day?
Market sources reckon that the Indian Government or the central bank need to outline a set of measures - immediately - to reassure investors that growth will not get derailed by the coronavirus. As for non-resident Indians, the only question before them is whether to remit now or wait hoping the currency could dip lower.
Adeeb Ahamed, Managing Director at Lulu Financial Group, said: “The rupee plunge has come in a dramatic way and is at 73.50 against the dollar, which translates to 20.01 against dirham.
“However, we feel the rupee (low) is overdone and that further falls will be limited, with Reserve Bank of India’s intervention very much expected. It might not go below 72.20 to the dollar in the near future, even if there is intervention or a reversal.
The Indian stock markets are sliding and the currency plummeting in a way beyond control. As of now, the central bank has not intervened since the intensity of the fall is beyond one’s imagination.
What can India’s central bank do?
The Reserve Bank of India chief has spoken about market intervention to get the economy and stock markets back on track. The easy and immediate way would be to effect an immediate rate cut, which is what the US has done, and followed by central banks in the UAE, Saudi Arabia and Bahrain.
Currently, India’s key bank rate is at 5.15 per cent.
“We’re ready for a response should the situation warrant,” said Shaktikanta Das, the RBI Governor. “And going forward, in the near future, I do expect some discussion through video conference or telephone conference among the central banks of the large economies, including India.”
The markets may have been expecting a more robust action from the governor, and not just hints. It could explain why the key stock market index, Sensex, dropped in early trading on Wednesday.
Much the same seems to have happened in the US, where “US equities tanked 3 per cent following a surprise 50-basis-point cut from the Federal Reserve,” said Ipek Ozkardeskaya, Senior Analyst at Swissquote Bank, in a note. “It appears that the move rather frustrated investors who were expecting a more creative, or impactful action than a simple rate cut, which they thought wouldn’t remedy to disrupted supply chain problems.
“We have a real issue here: investors are expecting central bankers to become the heroes that they are not meant to be.
“Meanwhile, G7 ministers’ pledge to give the necessary support to fight back the coronavirus shock on the economy didn’t charm investors either.”
Gold treads higher
The lack of keenness to the many announcements can be seen in the renewed investor interest in gold, which on Wednesday was in the $1,640 an ounce plus range.