The Indian rupee is fast closing in on 95/$. On Friday, it breached 94 for the first time and closed at 94.82 – down 84 paise from previous close – as the ongoing West Asia war continued to hurt the currency.
This sharp fall on Friday has taken the year-to-date depreciation of the rupee to 10.94%, the highest in 14 years. The rupee has fallen 4.2% since the beginning of the war.
Divergent US-Iran comments on ending the war have heightened market uncertainty, further weakening sentiment and ending initial hopes for a ceasefire, said forex dealers and analysts. Consequently, the crude oil prices were up 2.6% over $ 111 per barrel.
Worst-in-Asia Performance
The rupee continues to be the worst-performing currency compared to its Asian peers, followed by Japanese yen declining 6.2% and Phillipine pesso at 5.5%.
Dealers said that the Reserve Bank of India (RBI) intervened in the forex market by selling dollars to provide liquidity. However, the action was not aggressive, allowing the rupee to weaken further.
“The rupee has been depreciating faster than other currencies. The strengthening dollar, which is pressuring the rupee to weaken, along with other currencies. The pace has been higher primarily because of the FPI outflows and worry over a higher import bill from elevated oil prices,” said Madan Sabnavis, chief economist at Bank of Baroda.
He added that it may not be appropriate to keep depleting reserves in this environment for just a stability for couple of days. “I do not anticipate heavy intervention unless speculative positions build up. Since the rupee crossed the 92 mark, we have seen a free flow of the rupee with limited intervention,” Sabnavis said.
Strategic Restraint
The RBI’s FX reserves fell by $ 30 billion to $ 698.35 billion in March from an all-time high of $ 728.49 billion on February 27.
A dealer at a public sector bank said diverging US-Iran comments have created more uncertainty in the market, fueling risk-averse buying pressure and sentiment. He added that the war disrupted the supply chain and created a panic in the market.
According to Dilip Parmer, research analyst at HDFC Securities, there has been a huge demand from oil importers due to month-end requirements as well, along with pressure from oil prices and a strengthened dollar. He further said that 95 is not far away now if war continues.
