The Indian rupee fell for the sixth straight session on Monday and settled 32 paise down Monday, breaching the 75 per dollar level or 20.45 against the dirham for the first time in eight months, boding well for non-resident Indian remitters.
The rupee’s drastic fall amid a rapid increase in coronavirus cases, was triggered by, among other factors, concerns of excess liquidity in the wake of Reserve Bank of India’s dramatic quantitative easing move last week.
Rising crude oil prices and foreign fund outflows also weighed on Asia’s worst-performing currency amid a lackluster trend in the domestic equities ahead of the release of key macro-economic data, currency experts said.
Adeeb Ahamed, managing director, Lulu Financial Group, said the rupee closed at 75.06 (20.45 against the dirham) after opening at 74.96 as against Friday's close of 73.7350. This is the sixth straight session of loss for the currency, during which it has seen depreciation of 193 paise.
“The next two days are holidays in India, and upon opening, we expect the Rupee to open slightly weaker between 75.08 - 75.15 on Thursday morning. The rupee may also likely test 75.20 and 75.35 since it has breached 75.10, although it is unlikely to breach 75.45 during the week.”
“The outbound remittance often picks pace during Ramadan and peaks in the period nearing Eid, and with the dirham gaining value, we foresee a further increase in remittances to the Indian corridor in the coming weeks as well as to countries such as Pakistan, Egypt and Morocco,” said Ahamed.
In 2020, the rupee declined more than 3.0 per cent against the US currency amid the RBI’s dollar purchases.
The rupee has already been battered by 2.0 per cent since the RBI unexpectedly announced quantitative easing style G-sec acquisition programme (G-SAP) last week with the first auction aggregating Rs 250 billion to be held on April 15, 2021.
“Choppy times are ahead for the rupee which was definitely not expected as the liquidity dimension added by the RBI and the commentary provided has spooked the market. We need to see how the rupee moves and with the 75- mark reached there should be some correction post the first GSAP auction. We still maintain Rs 74-74.5/$ is the fair rate, but the market may prove us wrong,” analysts at Care Ratings said.
“The Indian rupee spot slipped past the 75-mark to nine-month low of 75.15 on Monday as rising Covid-19 cases sparked fears of a complete lockdown in Maharashtra and a few other states, dampening hopes of a faster recovery and increasing prospects of RBI’s ultra-loose monetary policy for a longer period," said Kaynat Chainwala - Fundamental Research Analyst Currencies, Anand Rathi Shares and Stock Brokers.
Currency experts said the rupee is likely to weaken further as investors cautiously await India's industrial output, manufacturing output, trade balance and inflation figures coupled with the first G-SAP auction.
Care Ratings said the RBI policy of providing even more liquidity to the system through the GSAP, though positive for the bond market is not so for the currency. There is now excess liquidity of Rs7.0 trillion in the reverse repo basket and there will be an infusion of Rs250 billion on the 15th of April. “So much liquidity in the system is not good news for the rupee. Add to this the panic attack of the pandemic-induced lockdown and the news of shortage of vaccine, the economy does not look as strong as was conjectured.”
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