Rupee hits fresh low amidst concerns over trade deficit, current account deficit

Our Bureau | | Updated on: Jul 05, 2022
Previously, the rupee hit an intra-day low of 79.12 against the dollar on July 1

Previously, the rupee hit an intra-day low of 79.12 against the dollar on July 1 | Photo Credit: SUDERSHAN V

India’s trade deficit widened to a record $25.63 billion in June as imports shot up by 51.02 per cent to $63.58 billion

The rupee hit a fresh low against the US dollar on Tuesday amidst continuing foreign portfolio outflows, rising oil prices, and a record trade deficit, leading to concerns over a wider current account deficit.

The Indian rupee closed at a record low of 79.37 against the US dollar. It opened at 79.00. It had closed at 78.95 on July 4.

Previously, the rupee hit an intra-day low of 79.12 against the dollar on July 1.

“The rupee has slumped to a new record low of 79.37 against the dollar, depreciating by around 0.50 per cent on the back of a rise in the dollar index towards a new twenty-decade peak. Besides, heavy portfolio outflows, soaring crude oil prices, and a rising interest rate regime of the major central banks have been the key catalysts behind this recent bout of weakness in the rupee-dollar exchange rate,” said Sugandha Sachdeva, Vice President-Commodity and Currency Research, Religare Broking.

Analysts expect the rupee to weaken to less than 80 against the dollar.

She further said, “We foresee the Indian rupee heading lower towards the 80-81 zone against the dollar, though the RBI is expected to proactively intervene in the markets to curb the pace of decline in the domestic currency.”

Trade deficit widened

India’s trade deficit widened to a record $25.63 billion in June as imports shot up by 51.02 per cent to $63.58 billion, according to preliminary data.

Nomura said it expects the current account deficit to be 3.3 per cent of GDP in fiscal 2022-23, up from 1.2 per cent in 2021-22.

“We see multiple headwinds, including weakening India BoP dynamics, aggressive Fed hikes, and rising US recession risks, which should drive INR weakness in coming months, with USD/INR at 82 by the third quarter of 2022 and 81 by the fourth quarter of 2022,” it said in a note.

Anindya Banerjee, VP, Currency Derivatives and Interest Rate Derivatives at Kotak Securities, attributed the fall to a sharp sell-off in EURUSD due to recessionary fears that triggered a risk-off trend across global equities. “A double whammy of weak equities and a strong US Dollar Index caused the rupee to depreciate against the US dollar,” Banerjee said.

Published on July 05, 2022
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