INR Falls to Record Low: Factors Driving the Currency Slide & Expert’s View

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INR Falls to Record Low: Factors Driving the Currency Slide & Expert’s View
Credit: © Reuters.

By Malvika Gurung -- The Indian rupee fell to a new all-time low against the US dollar on Tuesday, amid rising global crude oil prices and tracking weakness in domestic equities.

The domestic currency closed at a record low of 78.58/$1 on Monday and was seen trading 78.733/$1 at the time of writing, while benchmark equity indices Nifty50 and Sensex slid over 0.2% each.

Oil prices rose on Tuesday after UAE’s energy minister affirmed that the country’s producing near capacity, countering expectations that it could help boost supply in a tight market. Brent crude rose 1.67% to $112.83/barrel and WTI Futures surged 1.76% to $111.5/barrel.

Rising crude prices raise concerns of inflationary pressures, weighing on the country’s fiscal balance, given India’s massive reliance on oil imports. The rupee’s decline today is also the result of talks on increased sanctions on Russia.

Amid elevated domestic inflation, along with higher revised projections in the upcoming quarters, FIIs are relentlessly offloading their funds from domestic shares, weakening the currency.

“There is a dollar shortage in emerging markets. Past instances of cash USD shortage onshore have almost always been accompanied by a move higher in spot USDINR as well. Apart from interest rate differential getting narrowed, overnight swap rates have also come down because of the dollar shortage. Onshore banks selling NDF v/s buying onshore are turning tricky,” states Kunal Sodhani, AVP, Global Trading Center, Treasury, Shinhan Bank India.

He added, “Today's open interest on exchanges (NSE + BSE) is approximately $6.5 bln. And today is expiry on exchanges, thus there remains a close watch on the price action putting some pressure on the rupee.”

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