Moneycontrol
Last Updated : Sep 12, 2018 03:08 PM IST | Source: Moneycontrol.com

Rupee depreciates 14% YTD, but outperforms peso, lira, real, rand

Year-to-date, The rupee has managed to smartly outperform other emerging markets currencies which have seen worst fall like Argentine Peso, Turkish Lira, Brazilian Real and South Africa Rand.

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The Indian rupee has been depreciating consistently for last couple of weeks to hit fresh record low of 72.91 against the US dollar on Wednesday, on the back of rising oil prices, widening current account deficit, FII outflow, expectations of rate hike by Federal Reserve and escalated trade war between US and China.

In fact, since the start of this year, it was a vertical fall for the rupee from 63.28 a dollar, its strongest point for about two-and-half years, to its all-time low of 72.91 hit on Wednesday.

Rise in oil prices together with actual demand pick up for oil pushed the country's crude import bill to USD 10.2 billion in July which further led to higher the trade deficit of $18 billion, and going ahead could increase fuel inflation.

Another fall out of depreciating rupee was 10-year bond yield shooting up above 8.00 percent for the first time after 2014.

Turmoil in emerging market currencies like Argentine peso and Turkish lira is also one of the reasons that putting pressure on rupee.

Apart from that, currency experts and reports indicate some overvaluation in Indian rupee along with Colombian peso and Indonesian rupiah given that trade imbalance, too, caused weakness in emerging market currencies.

But that does not mean the rupee has seen its worst performance ever in percentage terms. It had fallen 24 percent during the period of global financial crisis of 2008.

The rupee has still managed to smartly outperform other emerging market currencies which have seen worst fall like Argentine peso, Turkish lira, Brazilian real and South Africa rand.

Year-to-date, Argentine peso depreciated by nearly 104 percent to 37.94 against the US dollar, Turkish lira down 70 percent to 6.44, Brazilian real down 25 percent to 4.15 and South Africa rand declined 22 percent to 15.07 against the dollar.

Even if we see the performance of last one year, three-year or five-year, the Indian currency still outshines others among emerging markets basket.

In three-year and five-year periods, rupee is down around 8 percent and 9 percent, respectively, while Argentine peso weakened by around 300 and more than 500 percent against the US dollar, Turkish lira more than 100 percent and 200 percent, Brazilian Real down over 10 percent and around 70 percent, respectively.

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"Argentina has USD 25 billion worth of debt maturities in the next one year, owing to which it has approached IMF to support its funding requirement. Argentina President Macri's statement asking for speedy sanction of $50 billion from IMF has unnerved global sentiments," Kotak said.

The Turkish lira has also taken a hit after US imposed import tariffs on Turkish steel and aluminum.

"Turkish equities and bonds got sold off. Euro collapsed on Eurozone's exposure to Turkish assets, dragging EM currencies lower," Kotak said, adding country's debt worth $179 billion will mature in next 1 year.

The pain in emerging markets could worsen in case US goes ahead with the planned tariffs and further tightening by Fed.

Hareesh V of Geojit Financial Services also said prevailing weakness in rupee may continue further unless any strong market intervention or policy measures from the RBI to cool down the currency. "A delay in market action may take the rupee to Rs 73.50 or even more in the immediate run."

In the short term, the rupee could be in a range of 72-74 a dollar but in medium term, it would settle around 70 against the dollar, according to QI GAO of Scotiabank.

Crude is the major part of India's import bill as it is a net importer, so any increase in prices henceforth will have direct impact on rupee also, experts said, adding sanctions imposed on Iranian oil by the US will have major impact if supply won't be levelised.

"As per IEA estimate, OPEC surplus crude production capacity is going down and hence OPEC will have limited ammunition to counter supply outages, if any," Kotak said.
First Published on Sep 12, 2018 03:08 pm
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