Photo: Brent Lewin/Bloomberg
Posting its worst weekly loss in 11 months, the rupee on Friday breached the 76/$ level despite heavy dollar selling by state-run banks on behalf of the Reserve Bank of India, slowing the pace of depreciation.
The currency weakened 1.15 per cent against the dollar this week. Dealers estimated the central bank’s intervention on Friday to the tune of $1-1.5 billion.
Participants in a dipstick survey by Business Standard said the rupee could be heading for its all-time low and test the 77/$ level if crude oil prices continued to surge. Some expect the rupee to cut losses after touching 77/$ in case Russia-Ukraine tension recedes by March end.
“It is rare to see geopolitics drive financial markets but that is what is happening over the past two weeks. The Russia-Ukraine conflict is hurting the rupee, Indian bonds, and Indian equities via three channels: Oil prices, the US dollar index, and global equity prices,” said Anindya Banerjee, deputy vice-president (currency derivatives and interest rate derivatives), Kotak Securities.
“Next week will be relatively quiet on the data front. Therefore, it will be the trio — oil prices, equity, and the US dollar index — which will drive USDINR (dollar-rupee).
USDINR remains in an uptrend as long as prices sustain above 75.50 on spot. The target remains 77.00 levels, all-time highs,” Banerjee said. The rupee hit an all-time closing low on April 16, 2020, when it touched 76.87. Intra-day, it saw 76.92 on April 22, 2020.
This was the fourth straight session that the rupee weakened against the dollar. The currency closed at 76.15/$, down 0.34 per cent, as investors fled risk assets after Ukraine said Russia had attacked and seized its largest nuclear power plant.
This was the worst closing for the rupee since December 15, 2021, when it ended at 76.23.
“The rupee has been the worst-performing Asian currency over the last four sessions, losing 1.1 per cent,” said Abhishek Goenka, founder and chief executive officer, IFA Global.
“Crude prices sustaining above $110 per barrel is weighing on sentiment. There have been offers from nationalised banks, likely on behalf of the RBI, but the bids have been overwhelming,” Goenka said.
Dealers said intervention by the central bank in the spot market was evident in all the sessions this week, which slowed the pace of weakening.
“Delayed but not denied,” said Imran Kazi, vice-president at Mecklai Financial, on the rupee breaching the 76 mark despite heavy dollar selling by the central bank.
“We see the rupee at 75.50-76.00 by March end. But before that it could reach 77/$, an all-time low level,” Kazi said.
Even before the Russia-Ukraine tension started, the rupee was seen weakening as the US Federal Reserve was expected to be hiking interest rates aggressively to tame inflation.
A hike in US interest rates would have meant investors dumping emerging market assets. Now, with the Russia-Ukraine tensions flaring up, the pace of interest rate hikes by the US Fed is not seen as aggressive. This, however, has not changed the fortunes of the Indian currency.
“The recent sanctions on Russia prompted Ratings Agency S&P Global to cut Russia’s credit rating deeper into junk territory. The soaring Crude oil and commodity prices have also hit economies hard since the Russia-Ukraine conflict began. This has now stoked fears that recent high inflation could combine with stagnant economic growth, making it more difficult for the Federal Reserve and other major central banks to manage interest rates,” Emkay Global said in a note while adding the rupee was expected to depreciate to 76.44 levels.