Home NewsForex Market News Indian rupee hits another record low against the dollar, and the continued decline in the stock market exacerbates the inflation woes | Anue Juheng – Fund

Indian rupee hits another record low against the dollar, and the continued decline in the stock market exacerbates the inflation woes | Anue Juheng – Fund

by WOOWinvest
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Indian rupee hits another record low against the dollar, and the continued decline in the stock market exacerbates the inflation woes | Anue Juheng – Fund


The Indian rupee fell to a record low of 79.1113 against the US dollar on Friday (1st). India’s widening trade deficit and capital outflows have created new risks for the rupee, which has slumped to a record low, adding to the inflation woes.

India’s external balance is deteriorating, citing a terms-of-trade shock from higher commodity prices and weaker global growth, economists at Goldman Sachs Group Inc. said in a report on Thursday, which also makes the rupee likely to weaken further against the dollar.

While the Reserve Bank of India has already started raising interest rates, which usually supports the currency, it could also hit domestic equities, further accelerating outflows and depreciating the rupee. At the same time, demand for dollars is rising, putting further pressure on India’s currency to depreciate.

Multiple challenges hit rupee

The Indian currency is facing many challenges, including: widening deficit, shrinking foreign exchange reserves, expensive imports and capital outflows.

According to a media survey in late June, India’s current account gap is likely to widen to 2.9% of gross domestic product in the fiscal year ended March 31, almost double the level of the previous year.

Rahul Bajoira, an economist at Barclays Bank in Mumbai, pointed out that the current account deficit is widening, and if it starts to approach 4% of GDP, policymakers will need to take both fiscal and monetary measures.

The RBI is working on a multi-pronged approach to slow the rupee’s fall, while its stated stance is to intervene to contain currency volatility without affecting its direction. Nonetheless, the RBI spent $18 billion in the spot market between January and April to prop up the rupee, the latest central bank data showed.

Pressure from capital outflows

India’s trade deficit widened to an all-time high of $24 billion in May as global crude prices soared and India’s import bill nearly doubled. The tightening of global monetary policy has put pressure on economic growth and slowed India’s exports.

Radhika Rao, senior economist at DBS Bank, estimates that overall imports will rise by 20% and could widen the goods trade deficit by about 40% this year.

Foreign investors have pulled more than $32 billion from Indian stocks in the past year, making it the worst-performing stock in Asia after Taiwan. Bonds also saw outflows, second only to Indonesia and Malaysia.

Madhavi Arora, chief economist at Emkay Global Financial Services Ltd, said the risk of underperformance of the rupee cannot be ignored amid a weak performance in global equities and a further deterioration in the balance of payments in the coming months.

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