Rupee hits fresh record low as dollar continues to soar at 2-decade high
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Rupee hits fresh record low as dollar continues to soar at 2-decade high

By Staff Writer

  • 12 Jul 2022
Rupee hits fresh record low as dollar continues to soar at 2-decade high
Credit: Reuters

The rupee hit a fresh historical low of 79.57 against the US dollar today in backdrop of a broad rally in the US dollar. The Dollar Index, which tracks the currency against a basket of six peers rose to 108.3, the highest since October 2002.  

The weakness in the Euro is a big part of Dollar Index's push higher, with the safe-haven appeal of the US currency also attracting investors amid growth worries elsewhere. 
The euro hovered close to a 20-year low near parity to the dollar amid concerns that an energy crisis could tip Europe into recession. 

Widening trade deficit, decline in the foreign exchange reserves and higher global energy prices are also pushing the rupee lower, said Rahul Kalantri, vice president - commodities, Mehta Equities Ltd. “We expect the rupee to remain volatile this week and test 79.80-80.05 levels." 

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As per data released by the Ministry of Commerce and Industry recently, India's trade deficit widened to $25.63 billion in June. For the first quarter of the current financial year, the trade deficit has widened to $70.25 billion due to high imports. 

Currency traders this week will be focusing on US inflation data and comments from Federal Reserve officials as they look for clues for the outcome of the US Fed's upcoming policy meeting. A high inflation reading would add pressure for the Fed to step up its already aggressive pace of interest rate increases. 

However, growth fears were also weighing on oil. Brent crude fell to $106.04 per barrel. Though FII selling of Indian stocks has eased a bit in recent days, they continue to be net sellers. On Monday, they sold Indian equities worth ₹170 crore on a net basis.

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The Reserve Bank of India (RBI) on Monday asked banks to put in place additional arrangements for export and import transactions in Indian rupees in view of increasing interest of the global trading community in the domestic currency. Banks will however require prior approval from the Foreign Exchange Department of the Reserve Bank of India (RBI), the central bank said in a circular. 

“It's a good move. This would make the rupee more tradable in offshore centers. I think NDF volumes will go up further. It's a step towards making the rupee an internationally-traded currency. Its will go up and it will also undermine the use of dollar over the longer term. Overseas buyers can open a Vostro account with an Indian bank and can make payments in INR to Indian exporters. The forex risk gets transferred to the overseas buyer as the rupee amount is fixed (since invoiced in INR)." 

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