The rupee hit a record low on Friday as the US dollar rose after the election due to risk and expectation about change in US policy. Other actions that weakened the local currency include; Foreign portfolio investment that involves selling of equities and bonds in foreign market at Indian market.
India’s rupee fell as low as 84.4975 against the US dollar in the early Friday trading, just beating Thursday’s low of 84.4925 against the Dollar; the currency remained almost stagnant at 84.49 at around 10:40 a.m. IST. The rupee slumped this month due to dollar gains caused by Donald Trump’s victory in the US presidential election and foreign investors withdrawing more than $4 billion from Indian markets.
Since the Nov. 5 election, the dollar has gained more than 3 percent as traders bet that Trump’s policies would fuel inflation and curb the possibility of further Fed rate cuts. Although the dollar appreciation slowed during the earlier part of the week, it escalated on Wednesday due to a surge in geopolitical factors and a dovish tone on future monetary easing by the Fed.
The rupee in November has been down by nearly 0.5%, while the RBI has been very active in trying to contain too much fluctuation. However, other Asian currencies have seen sharper declines, falling from 0.9% to 2.2% over the same time.
Worse still, the RBI-assisted 40-currency REER revealed that the rupee was overvalued by 7.21% by the end of October. This raises the prospect of erosion of competitiveness of Indian exports, which will add to the difficulties the currency faces.
Investor selling continues taking its toll on the portfolio and is a hat tip to the constant volatility of the rupee against the backdrop of the changing global economic environment and domestic market trends.
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