The nervous Indian Rupee or INR is attempting to find its true value as it nose-dived to its lowest closing at 68.95 against the US Dollar on July 5.
The domestic currency has continued its depreciating streak over the past few weeks.
On Friday, the rupee skidded to touch 69.03 against the US Dollar before ending at 68.87.
The Indian currency has been the weakest since it had touched the 68.80 level against the US Dollar on August 28, 2013.
The Rupee is one of the worst performing currencies this year. Since January this year, it has weakened over 7 percent against the US Dollar. During the same period, Rupee has dropped by 4.6 percent against the Euro, 9.7 percent against the Yen and 5.2 percent against the British pound sterling.
Also, foreign investors have sold $ 585.40 million and $ 6.10 billion in equity and debt markets, respectively.
Will the turbulence settle?Most experts believe that a weaker currency could help balance trade equations even as fears of a higher inflation amid an election year ahead in 2019 could put more stress on the rupee to strengthen.
A senior treasury official of a public sector bank calls the weakening of the rupee as ‘turbulence’. “We are not seeing a very scary position but not very bright as well. Next 2-3 months will be troublesome,” he said.
“Rupee may touch 70 there will be
Fears over a slowdown in the country's economy owing to rising global crude oil prices, widening current account deficit concerns amid global trade wars have kept the rupee on tenterhooks.
On June 28, it had collapsed to a record low of 69.09 against the US dollar and it hit its fresh all-time closing low of 68.95 on Thursday, July 5.
Also Read: Rupee may apply brakes if it breaks 70/$
Moreover, the hawkish US Federal Reserve policies and a higher than expected minimum support price could stoke inflation to rise up and lead to higher interest rates and a tighter supply of money.
“Asian currencies and foreign exchange markets will likely be driven by how the current trade dynamics play out after the deadline passes for the United States to impose tariffs on some of the Chinese goods it imports,” a Reuters poll said.
It also said that global trade tensions and rising oil prices are expected to weaken the Rupee over the next year.
While Reserve Bank of India’s intervention has eased the volatility, the rupee is likely to dwindle further.
Salil Datar, CEO of Essel Finance VKC Forex Ltd, "With the USA taking an aggressive stand on possible sanctions against India for the latter’s oil imports from Iran, the rupee has further weakened on Thursday. Intervention by the RBI is likely to keep the exchange rate at around 68.75-69 level."
Hence, even while the situation looks grim for now, the fall has allowed the Rupee to find its true value as it may no longer as overvalued in real effective exchange rate terms.
Meanwhile, RBI intervention along with reasonable forex reserves, a possible hike in interest rates along with reasonable growth prospects may support the rupee to sail through.
As Dharmakirti Joshi, Chief Economist of Crisil says, “Markets don’t like uncertainty and the trade war developments are injecting uncertainty… The stages of sharp appreciation and depreciation doesn’t last and correct themselves.”
Joshi believes that India is definitely not fragile like it was in 2013.
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