On Wednesday, the Indian Rupee went below 86 against the US dollar during the day’s trading, driven by more foreign outflows and higher global oil prices. The currency closed at 85.90 to the dollar on Wednesday, which is 31 paise weaker than the previous day’s rate of 85.59. It represented a drop of 0.51%, making it the worst daily session since May 22 and caused the week’s fall to reach 0.61%.
A fall in the rupee below the key level of 86 in a single trading session shows that pressure on the currency is increasing due to various factors. Above all, it is the ongoing departure of foreign portfolio investors (FPIs) that is important, since they have been net sellers for three days running in the Indian equity market. On Wednesday, block deals also saw global investors selling off major stakes in Indian companies, which contributed to the rupee falling further.
Higher prices for crude oil on the world market add more stress to the situation. Brent crude ended the day at $65.93, up 0.46%, and WTI crude was also up 0.46%, trading for $63.70. Higher oil prices are the result of OPEC saying it will increase output, which is causing rising inflation and pushing investment money out of India and other such countries.
Now, attention is given to the Reserve Bank of India’s Monetary Policy Committee (MPC) meeting which started today. Most analysts are forecasting a repo rate cut of 25 basis points to 5.75% during the committee’s scheduled meeting on Friday. Reducing interest rates could ease the domestic market, but the currency could still get more unstable if foreign investors are hesitant.
The Dollar Index did not move much after Tuesday’s increase and ended at 99.19. The US JOLTS report, which surprised with its increase in job openings, provided confidence in the American economy and helped firm up the greenback.
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