News Indian rupee at fresh record low, breaches 71 for the first time

[Himanshu]

Rupee opened at a fresh record low of 70.95 per dollar versus previous close 70.74.
Moneycontrol News@moneycontrolcom

The Indian rupee breached the 71 mark for the first time in the morning trade Friday. It has opened at a fresh record low of 70.95 per dollar versus previous close 70.74.

Yesterday the rupee ended at fresh life time low of 70.74 the dollar due to month-end demand for the US currency from importers and rising crude oil prices.

However, during the day the rupee slipped to a record low of 70.90 to a dollar.

VK Sharma, Head Private Client Group & Capital Market Strategy at HDFC Securities said, “Indian Rupee has depreciated around 11% year to date. Higher crude oil prices, demand from defense and oil marketing firms have contributed to the latest bout of weakness."

"Rupee was overvalued on trade weighted real effective exchange rate. We are not overly concerned about the rupee beyond 72 level. Robust FDI flows in e-commerce companies, healthy forex reserves may limit the downside of the rupee,” he added.

On Thursday, rupee fell to fresh record low levels of 70.80 in the intraday session. The currency in the last few sessions has come under pressure following dollar demand by oil marketing companies and defence related buying. Apart from domestic dollar demand, weakness in Asian currencies also weighed on the rupee, said Motilal Oswal.

Yesterday, Turkish Lira fell by over 5% as resignation of the deputy central bank governor intensified market concerns over the direction of monetary policy. On the other hand, Argentina Peso fell after its central bank raised rates to 60% as it struggles to repay heavy government borrowing.

For the day, rupee is expected to quote in the range of 71 and 71.50 (Sept), it added.

Emerging market currencies are under pressure as the Argentine Peso (ARS) and Turkish Lira (TRY) have weakened significantly. The request by the Argentine government to the IMF for early release of USD 50bn loan started the downslide in the Argentine Peso. The Turkish Lira too crashed 5% on chatter that the deputy governor of Turkish Central Bank could resign, as per IFA Global currency report.

There was selling by nationalized banks yesterday around 70.80 and we could see that happen today as well.

Indian Rupee plunged to all-time low of 71 levels in the early trading session as crude oil prices continued to inch high and again trades above USD 70 mark. So far, the local unit has fallen by more than 3.5% in the current month on account of weakness in the peer currencies and concerns over widening trade and current account deficit, report further said,

Indian rupee at fresh record low, breaches 71 for the first time

 

[Ashutosh]

RBI is letting Rupee fall against dollar while it has been performing well against other Currencies.

 

[Ashwin]

RBI is letting Rupee fall against dollar while it has been performing well against other Currencies.

'Letting' is not consistent with sudden drop in forex.

As rupee bleeds, forex reserves plunge by $25.147 billion since April peak

 

[Ashutosh]

'Letting' is not consistent with sudden drop in forex.

Forex reserves drop $33.2 million to $400.84 billion

It is, at about Rs. 240 Crores that will have no consequence on Exchange rate prices. Not even pocket change. Its stupid to even compete with the dollar, it has never been this strong in ages US is growing at 4.2% that's freaking huge.

 

[Ashwin]

It is, at about Rs. 240 Crores that will have no consequence on Exchange rate prices. Not even pocket change. Its stupid to even compete with the dollar, it has never been this strong in ages US is growing at 4.2% that's freaking huge.

Yes, RBI did the stupid move because of the populist narrative. They burned $25 billion.

As rupee bleeds, forex reserves plunge by $25.147 billion since April peak

 

[advaidhya]

Yes, RBI did the stupid move because of the populist narrative. They burned $25 billion.

As rupee bleeds, forex reserves plunge by $25.147 billion since April peak

RBI did something like forwarding, not selling of dollar. In forwarding, the dollar is prematurely handed over for a future payment. This means that the payment of the future has been covered already and India lost very little foreign exchange. So, it is not a stupid move. But such exercises have a limit and this is where the limit stops.

 

[Ashutosh]

Yes, RBI did the stupid move because of the populist narrative. They burned $25 billion.

As rupee bleeds, forex reserves plunge by $25.147 billion since April peak

I was referring to RBI's role specifically in August. They have enough cash to burn through. Also, Fiscal policy is tied to finances, this is going to be the "more or less" for the next two years. What is provisioned for here in. Given the Global scene.

 

[advaidhya]

I was referring to RBI's role specifically in August. They have enough cash to burn through. Also, Fiscal policy is tied to finances, this is going to be the "more or less" for the next two years. What is provisioned for here in. Given the Global scene.

View attachment 3053

How did you get this chart?

 

[Superkaif]

Viewpoint: What can stop India's rupee plunge?

The Indian rupee is languishing at a record low, hit by a combination of forces including higher oil prices and fleeing foreign investors. Pressure is mounting on India's central bank to act as a weak rupee stokes fears in the country's swelling middle class, writes Vivek Kaul.
At the beginning of April, $1 (£0.77) was worth 65.1 rupees. On 11 September, $1 bought 72.7 rupees - a record low for the Indian currency. In a little over six months, the rupee has slumped more than 11%.

Why is the rupee falling? One big factor is oil. India imports more than 80% of the oil it consumes. That dependency - coupled with higher oil prices - has seen the country's oil import bill shoot up this year. The oil import bill for the first three months of the financial year was $28.9bn, up from $18.8bn last year.
A higher oil import bill basically translates into a greater demand for dollars by the oil marketing companies, which bring oil into India.

Money takes flight

Along with the oil marketing companies, a greater demand for dollars has come from foreign investors who are pulling out of India.
Over the years, foreign investors have poured a lot of money into India's stock and debt markets. This was largely fuelled by all the easy money floating around the Western world in the aftermath of the financial crisis that broke out in 2008.

Foreign investors borrowed money at low interest rates and parked that cash in India and other emerging markets. Now with interest rates likely to go up in the United States and other parts of the Western world, there has been a dash to take money out of India, particularly the debt market.

Demand for dollars

As well as rising interest rates, the general global bearishness regarding emerging markets after crises in Argentina and Turkey has intensified India's currency woes.
In the three months to June, these investors withdrew $8.1bn from India. During the same period last year, they had brought $12.5bn into India. When these investors sell their Indian holdings, they get rupees. They sell these rupees for dollars, and thus push up the demand for the dollar.

Typically, this demand for dollars is met through dollars that come into India via the services sector - primarily information technology companies that bill in dollars. But services receipts during the period have gone up only 2.1% to $18.7bn.
Foreign direct investment coming into the country, and remittances from Indians working abroad, also bring in dollars.

Market intervention

To cut a long story short - the dollars coming into India haven't been enough to meet the demand for dollars leaving India - and this has led to the rupee falling in value against the dollar. A clear case of supply not meeting demand.

The Reserve Bank of India (RBI), has tried to stem the tide by selling dollars and buying rupees. The foreign exchange reserves of the RBI stood at $400bn as of August. They were at $424bn just four months earlier.

The larger point here being that even with the RBI intervening, the rupee fell against the dollar. The one lesson that the world learnt from Asia's 1997 financial crisis was that it is a very bad idea for a country's central bank to get obsessed with the value of its currency against the dollar and try to defend it at any cost.

There are only so many dollars that a country's central bank has, and they need to be used wisely. At $400bn, India has enough foreign exchange reserves but they need to be used judiciously.

The rupee is Asia's worst performing currency this year

In fact, when the rupee last fell sharply against the dollar in 2013, the RBI tried to stem its fall by intervening in the foreign exchange market. Everything from raising interest rates to talks about a bond issue for non-resident Indians, was interpreted by the market as a panic reaction. This put the rupee under further pressure against the dollar.

But there will be great pressure on the RBI from the government to keep defending the rupee, at all costs.

Pain at the pump

Prime Minister Narendra Modi, in the run-up to the 2014 general elections, used the falling rupee to discredit the government. He is facing the kind of taunts he made back then, from the opposition parties right now.

Further, any dip in the value of the rupee leads to an increase in petrol and diesel prices, which is a very sensitive issue for India's large middle class. As well as this, industrialists who have borrowed in dollars to take advantage of low interest rates, without having hedged their borrowing, have already started making noise.

Given this, there will be tremendous pressure on India's central bank to prevent the fall in the value of the rupee against the dollar. The industrialists will lobby for it as well. At best, the RBI should intervene to smooth the rupee's fall and let it find its level.

Media captionCan India's economy keep up its current growth rate?

Also, RBI Governor Urjit Patel can do what former RBI governor YV Reddy did in 1997 during the Asian financial crisis. Mr Reddy, who was a deputy governor of RBI back then, talked up the value of the rupee.

Mr Patel can do the same. India's economic fundamentals are looking up. Economic growth for the three months to June stood at 8.2%. Some of it was because of base effect, but even considering growth over a two year period, it is close to 7% per year - very healthy by global standards. On top of this, quarterly results for the three months to June have been the best in two years.

The problem is Mr Patel, unlike his predecessors, does not like to talk.
It's high time he broke his silence.
Vivek Kaul is the author of the Easy Money trilogy

Viewpoint: What can stop India's rupee plunge?

 

[Guynextdoor]

RBI is letting Rupee fall against dollar while it has been performing well against other Currencies.

it's ok. If external factors are driving this then we'll be making things worse by propping up the currency. Let it fall to whatever level it has to for adjustment. Hopefully the high oil prices will reverse a bit and we can have some repite. But the irritating thing is states not budging on VAT- at some point states have to stop that instead of looking at this as an opportunity to shore up state finances.

 

[Ashutosh]

it's ok. If external factors are driving this then we'll be making things worse by propping up the currency. Let it fall to whatever level it has to for adjustment. Hopefully the high oil prices will reverse a bit and we can have some repite. But the irritating thing is states not budging on VAT- at some point states have to stop that instead of looking at this as an opportunity to shore up state finances.

I think in the long run high oil prices will incentivize us in investing more in Electric Mobility. Some heavy lift and Aviation may needed to be run on Oil. But for the sake of Foreign reserves and Currency value having Li-Ion battery manufacturing has to be incentivized. Even if it means inviting companies relaxing norms and giving land away for free for construction of such factories.

Lower Rupee may revive some manufacturing in India by making it more difficult for people to import stuff. Oil never the less will be drain and a stress on out Current account.

 

[Shajida Khan]

I think in the long run high oil prices will incentivize us in investing more in Electric Mobility. Some heavy lift and Aviation may needed to be run on Oil. But for the sake of Foreign reserves and Currency value having Li-Ion battery manufacturing has to be incentivized. Even if it means inviting companies relaxing norms and giving land away for free for construction of such factories.

Lower Rupee may revive some manufacturing in India by making it more difficult for people to import stuff. Oil never the less will be drain and a stress on out Current account.

I think it is also somewhat a lack of planning on the part of Indian government. Post Iran sanctions, India should have entered into an agreement with Iran to block a portion of their oil yield for 5-10 years by paying some money upfront, before all this CATSAA bullshit started. Heck even when CATSAA was introduced in US Senate and House, India should have moved swiftly to secure oil from Iran, if possible with alternate payment arrangements in euros and yuan. This was a miss, a costly miss by MoF.

 

[jetray]

There was even talk of extracting gas from methane hydrates from the ocean bed. Seems it just got vaporized in due course of time just like other ideas.

Gas Hydrates | Ministry of Earth Sciences

 

[Ashutosh]

I think it is also somewhat a lack of planning on the part of Indian government. Post Iran sanctions, India should have entered into an agreement with Iran to block a portion of their oil yield for 5-10 years by paying some money upfront, before all this CATSAA bullshit started. Heck even when CATSAA was introduced in US Senate and House, India should have moved swiftly to secure oil from Iran, if possible with alternate payment arrangements in euros and yuan. This was a miss, a costly miss by MoF.

Alternate pay arrangements are already in place for Iranian Oil.
Read : Govt gives nod to Iran bank in Mumbai before US sanctions

The old arrangements are already in place, will only need to be revived. However, Iran was less than understanding when it has its sanctions lifted. despite GoI's request to allow deferred payments.

Read: Iran wants India to pay oil dues in euros - Times of India

We should diversify our oil procurement to ensure no we aren't over dependent on specific nation.

 

[Guynextdoor]

I think it is also somewhat a lack of planning on the part of Indian government. Post Iran sanctions, India should have entered into an agreement with Iran to block a portion of their oil yield for 5-10 years by paying some money upfront, before all this CATSAA bullshit started. Heck even when CATSAA was introduced in US Senate and House, India should have moved swiftly to secure oil from Iran, if possible with alternate payment arrangements in euros and yuan. This was a miss, a costly miss by MoF.

majority of our 120 Billion IT exports go to the US. At any given point of time US concerns will be important for us.

 

[Guynextdoor]

Alternate pay arrangements are already in place for Iranian Oil.
Read : Govt gives nod to Iran bank in Mumbai before US sanctions

The old arrangements are already in place, will only need to be revived. However, Iran was less than understanding when it has its sanctions lifted. despite GoI's request to allow deferred payments.

Read: Iran wants India to pay oil dues in euros - Times of India

We should diversify our oil procurement to ensure no we aren't over dependent on specific nation.

I think we're being naive. Fact is the Saudi and gulf is the most stable oil supplier we have had till now. While I'm ok with supporting Iran as an old friend, they've not exactly been as stable a partner. Unlike the Saudis who have always preferred not to rock the cradle by developing nuclear weapons or doing anything controversial, I'm convinced the Iranians have been hanky panky on that at times.

 

[Ashutosh]

I think we're being naive. Fact is the Saudi and gulf is the most stable oil supplier we have had till now. While I'm ok with supporting Iran as an old friend, they've not exactly been as stable a partner. Unlike the Saudis who have always preferred not to rock the cradle by developing nuclear weapons or doing anything controversial, I'm convinced the Iranians have been hanky panky on that at times.

Yes. Depending too much on Iran is dangerous, it is an irrational state, them having nukes is only an issue because of its belligerent rhetoric, and that will have negetaive consequences on its trade and then indirectly on to us. While we need to maintain oil procurement diversity and continued over reliance on Iran for oil is fool hardy, They didn't give us any breathing space once the sanctions were lifted.

 

[advaidhya]

Yes. Depending too much on Iran is dangerous, it is an irrational state, them having nukes is only an issue because of its belligerent rhetoric, and that will have negetaive consequences on its trade and then indirectly on to us. While we need to maintain oil procurement diversity and continued over reliance on Iran for oil is fool hardy, They didn't give us any breathing space once the sanctions were lifted.

Iran has been very unreliable and arrogant. If everyone behaved like Iran, there would be only war and no trade. Iran never was a friend of India and has shown hostility as and when it could afford to do so. When sanctions were lifted, Iran started its shenanigans by refusing India Farzad gas field which India helped discover and causing problems in Chabahar port etc. Iran has about 1000 TCF of gas and very little is being extracted. They would have had no problem if they allowed India to extract a hundred or two BCF annually. Yet, they showed their colour by misbehaving.

I think we're being naive. Fact is the Saudi and gulf is the most stable oil supplier we have had till now. While I'm ok with supporting Iran as an old friend, they've not exactly been as stable a partner. Unlike the Saudis who have always preferred not to rock the cradle by developing nuclear weapons or doing anything controversial, I'm convinced the Iranians have been hanky panky on that at times.

Saudis have also caused problems in India by sponsoring various groups. It is military threat by Modi that made them quiet and agree to give investment to India for all the damage caused till date. I would not say that they are well-behaved They are just more negotiable than Iran

 

[Ashutosh]

Iran has been very unreliable and arrogant. If everyone behaved like Iran, there would be only war and no trade. Iran never was a friend of India and has shown hostility as and when it could afford to do so. When sanctions were lifted, Iran started its shenanigans by refusing India Farzad gas field which India helped discover and causing problems in Chabahar port etc. Iran has about 1000 TCF of gas and very little is being extracted. They would have had no problem if they allowed India to extract a hundred or two BCF annually. Yet, they showed their colour by misbehaving.

Iran is an unreliable partner because of the irrational nature of its leadership who are just a bunch of clerics. Their only obejctive is to legitimise their hold on power. Their hostility is merely because of the ambition of the clerics to be seen as the leaders of the Islamic world which they never will be because they are Shia. Our only objective should be, to extract maximum out of the relationship on a purely transactional basis.

Saudis have also caused problems in India by sponsoring various groups. It is military threat by Modi that made them quiet and agree to give investment to India for all the damage caused till date. I would not say that they are well-behaved They are just more negotiable than Iran

Saudi's are simply a business family that has a country as its property. You can deal with them because they are not insecure. With the fall of the old guard in the Saudi Royalty. You can safely assume it to be being more reasonable and less fanatic int he coming years.

 

[advaidhya]

Iran is an unreliable partner because of the irrational nature of its leadership who are just a bunch of clerics. Their only obejctive is to legitimise their hold on power. Their hostility is merely because of the ambition of the clerics to be seen as the leaders of the Islamic world which they never will be because they are Shia. Our only objective should be, to extract maximum out of the relationship on a purely transactional basis.

This is not fully true. Iran is shia but the real divide came only after the 1979 revolution as other countries like KSA started propagating Shia-Sunni theory to alienate Iran and to prevent Iran from instigating another revolution as it tried to do in Iraq. I agree that we should try to get the maximum out of the relation on a transactional basis. But we must also ensure that Iran is not encouraged but remain contained. Pure short sighted transactions must be avoided.

Saudi's are simply a business family that has a country as its property. You can deal with them because they are not insecure. With the fall of the old guard in the Saudi Royalty. You can safely assume it to be being more reasonable and less fanatic int he coming years.

Saudis are very much insecure. They have family feud, legitimacy problems etc. The new generation is not any better but the policy appears that way to avoid alarming everyone. The ISIS, refugees etc have made everyone pretty alarmed and KSA wants to avoid that and hence reforms like women drivers etc. Don't fall into traps of these gimmicks.