RBI steps in to stop rupee hit 72 per US dollar

Mumbai: The rupee on Wednesday plunged further to a new record low against the US dollar as sentiments towards emerging market assets turned worse after South Africa slipped into recession after its economy shrank for the second consecutive quarter.

Tracking weakness in emerging market currencies, the rupee fell to a record low of 71.97 a dollar in the intra-day trade, but regained some lost ground on suspected intervention by the Reserve Bank of India (RBI).

Rupee finally closed the session at 71.76 a dollar, down 0.27 per cent from its previous sessions close of 71.57 a dollar.

“The rupee was seen extending its bearish leg against the US dollar for the eighth consecutive session to make a fresh low. However, exporters rush to cover short-term orders and possible intervention by RBI through PSU Banks might have helped rupee to curb losses to recover back upto 71.65 before ending the session at 71.75 levels,” said Abhishek Goenka, founder of India Forex Advisors.

With RBI being less aggressive in defending the rupee fall, he said there is expectation regarding an interest rate hike or issuance of NRI bonds to raise dollar money.  The 10-year bond yields surged to 8.11 per cent, but eased at the end of the day following softness in global crude oil prices. In 2018 till date,  rupee has weakened close to 11 per cent and is the fourth worst performing currency after Brazil, Russia and South Africa.

“Globally, weakness in emerging market currencies is being caused by fear of fresh tariffs from US on Chinese imports. This along with spike in oil prices is leading to the current weakness in the rupee. However, we expect the central bank to step into sell dollars to protect the Rupee,” said Anindya Banerjee, currency analyst at Kotak Securities.

While high bout of volatility in the forex markets is likely in coming days on account of a host of both domestic as well as global factors, he expects the local currency to move in the range of 71 to 72.50 in the near term.