Rupee Falls to Nearly Two-Year Low of 65.90/Dollar
The Indian rupee fell to 65.90/dollar on Friday amid fears of a currency war after China’s depreciation of its yuan. This is lowest value of the rupee since September 6, 2013, when it had hit 66.29/dollar.
This takes the rupee’s fall to over 3 per cent since August 11, 2015, when China depreciated its currency, sparking fears of competitive devaluation by different countries amid concerns about global growth.
The rupee had closed at 65.54 on Thursday.
Reserve Bank of India Governor on Thursday Raghuram Rajan had warned of risks from yuan devaluation. Dr Rajan said China’s devaluation of the yuan was not a concern, but warned of the dangers of “tit-for-tat” actions by other countries if the move was part of a long-term competitive devaluation.
“I think if the Chinese depreciation holds to about this level, it’s not something that one should be overly concerned about,” Dr Rajan said at a banking event in Mumbai. “If it’s part of a process of getting competitive advantage through … longer term depreciation it has to be worrisome across the world, partly because you could have tit-for-tat actions,” he added.
Michael Every, Head of Financial Markets Research for Asia-Pacific at Rabobank, said that Indian economy’s relative outperformance may help it better weather the global currency storm. But the rupee could remain under pressure amid global worries, he added.
Arvind Narayanan, head of sales for treasury and markets at DBS Bank, said that rupee is likely to remain under pressure and could slide to 66.25 levels in one to two weeks. The Reserve Bank of India could remain comfortable at these levels because of sharp fall in currencies of other Asian markets, he added.
The rupee was also hit by weak Indian stock markets, led by outflows from foreign investors who sold Indian equities worth over Rs 1,007 crore on Thursday.
The Sensex fell 475 points on Friday, taking its two-day decline to nearly 800 points. Prateek Agarwal of ASK Investment Manager said that Indian stock markets are likely to remain under pressure till the rupee stabilises.