A Free-fall For Rupee That Closes At 68.15 Against US Dollar

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New Delhi:It has been in a virtual free fall for rupee which settled a hairs breadth below its intra-day low of 68.15 a dollar.This is the lowest closing for the Indian unit since January 24, 2017 when it had ended at 68.15 against the US dollar.The rupee went into a tailspin by plunging 56 paise today, the second biggest single-day fall of 2018, to end at a new 16-month low of 68.07 as panic dollar demand rattled currency market.

A slew of domestic and external factors has made the fundamentals unfavourable for the rupee - including a massive trade balance deficit and a declining level of foreign direct investment (FDI).

Overall forex market has been hampered on the heels of the boiling global crude prices - its highest advances since 2014 is squeezing the carry-trade returns on the rupee to a point where they are the worst in Asia.

Crude prices hit a 3-year high supported by tight supply and planned US sanctions against Iran that are likely to restrict crude oil exports from one of the biggest producers in the Middle East

The Brent crude, an international benchmark, was trading at $78.96 a barrel in early Asian trade.India being a net crude oil importer, a rise in prices can affect the import bill and disrupt the fiscal position, derailing growth potential.

Hardening prospect of a series Fed rate hike this year along with exodus of capital outflows were the other major trigger points exerting pressure on the rupee, a forex dealer commented.

The trouble is that a free-fall in the currency would lead to a wave of corporate bankruptcies and rating impact on these companies as they have kept most of their foreign currency exposures unhedged largely bettting on rupee stability, a forex dealer warned.

Moreover, the global sentiment is already cautious because of US President Donald Trump's protectionist stance and threat of a trade war.

However, domestic equities witnessed a largely muted reaction after the poll outcome suggesting that the BJP might not be able to reach the half-way mark on its own to claim government formation in Karnataka.

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