The free fall of rupee has been unrelenting. The Indian currency hit a new all-time intraday low of 71 against the US dollar today. It has fallen 10.88 per cent against the greenback since the last one year, making it one of the worst performing Asian currencies.
A weaker rupee has resulted in rise in import bills, costlier foreign education and travel. The biggest impact is on petrol and diesel prices which have witnessed steady increase throughout the year. Petrol and diesel have risen by 13.99 per cent and 23.04 per cent respectively since August 24 last year.
The rupee extended losses for the fifth consecutive session and plunged to an all-time intraday low against the US dollar on strong month-end dollar demand from oil importers and foreign fund outflows. The currency which closed at fresh lifetime low of 70.74 yesterday fell 26 paise to touch the 71 level to the dollar.
According to Mr. Sajal Gupta, Head Forex & Rates, Edelweiss Securities Ltd the rationale behing falling rupee is that "USD INR market is reacting under panic from both exporters and importers. Market has become one sided, importers buying is natural under such movement but exporters are too exiting the hedges in expectation of higher rates. Thus they are too buyers of dollars in this market and adding fuel to fire. This shall not reverse till the time the trend is decisively broken and rupee trades below 70 and may be some strong measures like easing of ECB rules or at least resumption of buyers credit."
Yesterday, the rupee hit a historic intra-day low of 70.90 in early trading - a level that was unthinkable only a few weeks ago. Investor sentiments were weakened after a Moody's report highlighted risks of India breaching the 3.3 per cent fiscal deficit target for 2018/19.
"Higher oil prices add to short-term fiscal pressures, following cuts in the goods and services tax on some items and relatively high increases in minimum support prices for some crops. We see risks that the deficit will be wider than budgeted," Moody's had said.
The main reasons behind rupee's free fall can be attributed to higher crude oil prices (crude prices have spiked by almost 22 per cent in the last year), widening trade deficit, increasing capital outflows. Also fear of trade war between China and US which would have negative implications on Asian economies and sanctions on Iran are also affecting value or Indian rupee.The gloomy outlook on oil prices may makes matters worse. Unless our exports pick up substantially, this may worsen the deficit even further. That will make the rupee slide even further in the near term.