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October 2, 2022

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Rupee Rate: EM selloff takes rupee to new low

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Rupee Globally fell to a new high of $78.38 on Wednesday recession Concerns resurfaced, prompting investors to sell emerging market securities afresh after only two days US Federal Reserve Reduced the likelihood of a clear – and immediate – economic downturn in the largest economy on the planet.

reserve Bank of India Traders told ET that the RBI has estimated sales of around $1.5 billion through spot and forward-market interventions using several state-owned banks. The central bank did not immediately respond to ET’s queries.

The rupee fell 0.4% on Wednesday and was the third worst-performing Asian currency behind the Philippine peso and the Thai baht. On June 13, the local unit hit 78.28/$, an earlier record low.



Treasury General Manager Shushant Mohanty said, “Investors who shy away from making any fresh bets lack confidence. “Amidst fund outflows from India, the rupee is likely to remain volatile touching a new lifetime. oil prices Come down, fears of a global recession will continue to haunt the financial markets.”

Rupee

Cleveland Fed Chair Loretta Meester said on Sunday that she would not predict any recession, adding to the euphoria in the markets. But indices and exchange rates erased early gains on remarks from industry veterans that the threat of a recession in the US was more real than ever.

Crude oil prices remain elevated amid the Russo-Ukraine war. It is likely to fall only when OPEC, the apex body of oil producing countries, decides to increase production. In addition, speculation is rife that the US may cut sanctions on Iran, a major oil producer. Brent crude oil has been hovering in a broad range of $105-125 per barrel in the last four weeks.

High global oil prices are detrimental to India’s economy as the country imports four-fifths of its oil needs.

In this calendar year, foreign portfolio investors net sold $28.48 billion in local securities, data from NSDL showed.

Anindya Banerjee, currency analyst at Kotak Securities, said, “The central bank looks to cut losses on the rupee against the dollar. However, it is unlikely to hold any level (as sacred) as India is witnessing global emerging market trends. is not immune to.”

The central bank intervenes in the money market through two phases. While select banks were seen selling dollars on the spot, they were supporting such action through buy-sell swaps. This move protects the forex reserves and helps maintain the liquidity of the rupee in the system.

The one-month Bloomberg Volatility Index rose 17 basis points, compared to a 26-basis point increase in the dollar-renminbi gauge, according to data compiled by ETIG.

One basis point is 0.01%.

“The rupee continues to depreciate beyond our expectations,” said Abhay Gupta, FX strategist at Bank of America. “Risk still tilts towards further depreciation for INR as the fundamental outlook has worsened mainly due to higher oil and other commodities.”

At current spot levels, Bank of America expects the rupee to touch 81 by the end of the calendar year, up from 79 earlier.

The rupee has slipped in its ranking this month. In June, it lost nearly a percentage point to become the fifth-best performing Asian currency. About a week earlier, it was the second best-performing unit in the continent, losing nearly half a percentage point to the greenback, ahead of the Chinese renminbi.

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