The Rupee plummeted to an all-time intraday as well as closing low on Wednesday as the forex market continued to reel under the effect of the US imposing new tariffs on imports from Canada, Mexico and China and retaliatory moves by the latter.
The Rupee, which saw a gap-up opening of 87.13 per dollar, depreciated despite the US Dollar weakening. It closed at 87.46 per dollar, declining by about 40 paise from the previous close of 87.06. Intraday, the Rupee touched a low of 87.50.
The declining trend in the Rupee comes ahead of the Monetary Policy Committee (MPC) decision during its ongoing three-day meeting (from February 5th to 7th). While a weak Rupee will make exports competitive, it will raise the cost of imports.
Given that India imports about 85 per cent of its crude oil requirements, a weak Rupee coupled with rising crude oil prices could fuel inflation, which the MPC wants to align with its 4 per cent target. So, a decision on the repo rate could go down to the wire.
Dipanwita Mazumdar, Economist, Bank of Baroda, observed that post-November when the US election results were announced, the yield differential between India and the US started falling, even as pressure on the Rupee exacerbated during the same period.
She opined that a falling interest rate differential between India and the US on account of a sharper increase in US 10Y yield during the same period has resulted in capital outflows, with the resulting impact being a depreciating INR.