The Indian rupee has collapsed significantly to 81.89 a dollar. This is a huge depreciation from its value of 68.27 just a month ago. The reasons for this are many, but the primary one seems to be the escalating trade tensions between the United States and China. As these two countries are major trading partners with India, the resulting tariffs and other barriers to trade have put immense pressure on the Indian economy.
At the beginning of the last quarter, the rupee plunged, and the currency was within sight of another crucial level of 82 dollars. Crude prices rose on the possibility of oil producers cutting production. This led to concerns about higher inflation and a more aggressive response by central banks.
The Organization of the Petroleum Exporting Countries plus its allies, referred to as OPEC+, stated that they would be looking at lowering their output. This led to oil prices rising by more than 4%.
This rise in crude oil prices is a problem for the Indian currency. India imports three-fourths as much as its oil needs. It has been feared that India’s already stretched budget could be worsened.
PTI reported the plunge in the domestic currency to close at 81.89 per dollar.
Bloomberg indicated that the rupee was at 81.89 per $1 as of Friday’s close. It is not far from its record low level of 81.95 but it is still significantly lower than its Friday close of 81.35.
The rupee suffered from India’s falling factory growth to a 3-month low. Domestic bourses also crashed at the beginning October, Monday after a 10 Percent surge in previous quarter.
According to Reuters, Monday’s rise in oil prices and low risk appetite saw the rupee fall to new record lows. The Reserve Bank of India may have sold dollars via Indian state-run bank accounts.
Two banks and two brokerage firms confirmed the RBI intervention to Reuters.
According to Reuters, the intervention Monday was similar with recent sessions at which RBI tried to maintain the rupee’s stability above 82.
Even the British government’s tax Uturn which had rocked British market didn’t seem to have any effect on the general mood. Despite the fact that it helped the pound to recoup all of its losses,
The UK policy changes led to the UK’s battered pound rising by 0.5% at $1.1200. Meanwhile, its yields on government bonds dropped, which drove up their prices.
“Markets view it as a good step in a positive direction. It will take time before markets buy the message, but it should ease some of the pressure,” Jan Von Gerich told Reuters. “Questions still remain, and sterling will likely continue to remain under pressure,” he said.
Shunichi Suzuki, Japan’s finance secretary, has promised that Japan will take “decisive action” to prevent currency fluctuations. But the yen was temporarily unable to keep at 145.4 dollars.
Monday’s plunge below the 145 threshold marked the first since September 22, 1998, when Japan intervened to help its currency.
“Each time (dollar/yen), it gets people excited. “But it’s the size of the move sometimes that matters,” Christopher Wong from OCBC Currency Strategy told Reuters.
“That being said we remain vigilant and won’t rule out stealthy yen intervention, if the magnitude to which the yen’s decline increases again,” he explained.