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Indian Rupee nears record low as stocks rebound

February 18
6:57 AM 2016

Indian currency Rupee marginally fell and nearing its record low. The stocks on domestic bourses staged a recovery. The S&P BSE Sensex closed higher 0.8 percent recouping intraday loss of 1.2 percent. Overseas investors resorted to sell off in the Indian stock markets.  

With a net depreciation of 1.3 percent, Indian currency has been worst performer among Asian peers in January 2016. Rupee was down 0.1 percent to 68.4675 against the US dollar on Tuesday. During the intraday, Rupee fell to 68.6750 against the US dollar. The previous Rupee's record low of 68.845 was recorded in August 2013. 

Bloomberg holds the view that Indian stock markets were influenced by global risk aversion. The renewed global economy growth concerns triggered the risk aversion. Overseas investors offloaded $2.4 billion in Indian equities than their buying this year so far. The sluggish Bombay Stock Exchange (BSE) Sensex was indicating bear market. 

Hari Chandramgethen, head of foreign-exchange trading at South Indian Bank Ltd in Mumbai, said: "Stocks recovered smartly and that helped the rupee recoup earlier losses." Indian Rupee fell 1.3 percent against the US dollar in January alone. 

With Rupee falling to near record low, India's central bank has intervened into the forex market. India suffered its worst financial turmoil in August 2013 since the balance of payments (BoP) crisis in 1992. Forex traders expect the Rupee may test the record low, with one-month non-deliverable forwards PNDF trading at 69, according to The Times of India. The one-month implied volatility INRVOL of the Indian Rupee reached six-month high of 7.74 percent from 7.05 percent. 

Reserve Bank of India (RBI) Governor Raghuram Rajan recently stated that Rupee depreciation in a limited manner was necessary until the inflation rate eases. The Rupee depreciation will enhance India's competitive edge of exports in the global foreign trade. Indian exports fell 13.6 percent in January. The drop in exports was for the consecutive 14th month.

Forex traders hope positively on Indian rupee performance as the country's fundamentals are stronger than that in 2013. India's forex reserves nearing to record level of $355 billion and this will help ease concerns about the currency fluctuations. However, the future course of Rupee movement will depend upon how Reserve Bank of India handles the situation, opines NDTV Profit

Rajan is keen on strengthening foreign reserves and stockpile grew $2.3 billion during the week ended 5 February. This is the highest rise since September 2015. Sovereign bonds continued to move southwards for fourth session, while yield on notes due in January 2026 rose by one basis point to 7.79 percent, according to the data from RBI. 

During the past four sessions, the yield on notes rose by seven basis points. Rajan terms India as an island of relative calm in an ocean of turmoil. Highlighting the strength of India, Rajan said the country was growing at a rate, which is higher than many other nations. The inflation rate in India is comparatively low.

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