The rupee has closed in the red against the US dollar for the third consecutive quarter. The currency closed at 72.49 on Friday, down 5.5 per cent in the July-September quarter, the worst quarterly loss seen over the past five years.
Indeed, the rupee has begun the new quarter also on a negative note. The currency extended its fall and has closed near its record lows – at 72.91 – on Monday.
The Indian government’s move to increase import duty on non-essential commodities to curb the current account deficit seems to have had no immediate impact on the currency. Last week, the government increased the import duty on 19 non-essential commodities, including aviation turbine fuel, air-conditioners and refrigerators.
However, the rupee continued to trade stable below 72. Experts say that the government’s move is less likely to curb the current account deficit as oil prices are expected to go up further.
After the government’s measures last week, all eyes will now be on the Reserve Bank of India. The central bank’s monetary policy decision is slated for this Friday. Markets expect a 25-basis point rate hike. But whether the RBI will announce any measures to support the rupee will be keenly watched.
FPI sell-off
Foreign portfolio investors (FPIs) seem to have resumed their selling in the Indian market. After buying, though, in small quantum, in July and August, FPIs sold $1.4 billion in Indian debt and $1.49 billion in the equity segment in September. They have been selling debt over the past six weeks. A further sell-off will continue to keep the rupee under pressure.
Rupee outlook
As mentioned last week, the rupee may continue to trade in a sideways range between 72 and 73 in the near term.
However, the bias continues to remain negative. There is a strong likelihood of the currency breaking below 73 in the coming days. Such a break will see the rupee weakening to 73.7 initially. A further break below 73.7 will then increase the likelihood of the rupee tumbling to 74.5 over the medium term.
The outlook will turn positive only if the rupee manages to breach and close above 72 on a weekly basis. In such a scenario, the possibility will be high for the currency to strengthen towards 71 and 70 thereafter.