Indian Rupee on a downhill?

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The Indian Rupee is witnessing a hard time. On 6 September 2018, it dropped past 72 a dollar, reaching a record 72.1050. The lack of strong intervention by RBI and investors worries pushed the currency down even though its other Asian nobles witnessed rise.

 

The geopolitical tensions, tariff wars and rising oil prices have taken a toll on Asian currencies. Rupee witnessed a major hit falling sharply nearly 3% in the last 15 trading sessions, to stand at 72.11, from 70, fueling investor uncertainty.

 

Brent, the benchmark has jumped by more than 70 per cent from a low close in the middle of last year. The commodity is trading at $77.45 per barrel, below a three-year high of $80.50 per barrel reached in May. Rising oil prices will probably widen India’s current-account deficit of gross domestic product this financial year.

 
India’s current account deficit (CAD) is pegged at $13 billion or 1.9 per cent of the GDP in Q4 of 2017-18, which increased from $2.6 billion or 0.4 per cent of the GDP in Q4 of 2016-17. However, the CAD moderated marginally from $13.7 billion (2.1 per cent of GDP) in the preceding quarter.

 
For the quarter, the Reserve Bank of India accredited the widening of the CAD to a higher trade deficit ($41.6 billion) amid a larger increase in merchandise imports related to exports. For the full financial year, the CAD increased to 1.9% of the GDP in 2017-18 brought about by widening of the trade deficit. India’s trade deficit increased to $160 billion in 2017-18 from $112.4 billion in 2016-17.

 
The rapid fall in the rupee, Asia’s worst performing currency after losing nearly 12 percent this year, impelled exporters to postpone dollar sales expecting further falls, while demand rose from importers and firms looking to hedge.
 

The bonds have also suffered. The 10-year government security yield has recently touched 8 per cent, the highest in the last four years. In past four days, the 10-year yield has climbed 11 basis points. The rising bond yields amid sharp fall in Rupee and rising oil prices have raised worries for the debt investors.

 


India registered an increase of 8.2 per cent in its gross domestic product during the first quarter of the financial year 2018-19. Strong performance by manufacturing and construction sector led to a robust economy growth amid favourable base. However, going ahead the rising oil prices, subsequent fall in Rupee and widening trade deficit may pull down the GDP growth in coming quarters. Factors like upcoming state elections in 2018, rising inflation, widening CAD and expected rate hikes by the U.S. Federal Reserve, will further pressurize the Rupee to downhill.

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