Rupee falls to all-time low of 69.09 against US dollar
The rupee hit the all-time low of 69.09 against the US dollar on June 28, 2018, falling past 69 mark for the first time ever. The previous record low of rupee was 68.86 on November 24, 2016.
The rupee opened at an all-time low of 68.89 against the US Dollar. On June 27, 2018, it ended at 68.63, the worst ever closing since August 28, 2013, when it hit a record closing low of 68.82.
The fall can be attributed to the week-long rise in the crude prices amid concerns of higher inflation and current account deficit.
Here are the factors that attributed to the all-time fall of rupee:
Surge in Brent crude prices: The prices of crude oil have been increasing for the past several months since the announcement made by OPEC regarding cutting off the supply to stem the fall in prices. Global oil prices also climbed after the US and its allies decided to end all imports of oil from Iran.
Crude oil prices were at their highest at USD 77 a barrel on June 27, 2018, the highest since 2014 as the oil inventories of the United States witnessed their biggest fall in over two years and its exports touched an all-time record.
Increase in demand of US dollar: Over the past few weeks, the demand of the US dollar has increased significantly, as the crude oil prices surged. Oil importers rushed to buy dollars so that they could import crude for the lowest price they could get it for. Resultantly, the rupee began weakening, prompting banks to start accumulating the dollar. The dollar was traded at 95.45 on June 28, 2018 morning.
Declining currency value of Asian players and trade war: The weakness in Chinese yuan, the Singapore dollar, the Malaysian ringgit and the Indonesian rupiah could also be one of the reasons of this fall. All these currencies were trading in red amid concerns of a trade war between the US and China.
Worsening domestic macroeconomic fundamentals:
Rupee: Worst performing currency: The rupee is seen as the worst performing currency in Asia, shedding over 7.5 percent so far this year, followed by the Philippine peso (down by 6.7 percent) and Indonesian rupiah (down by 4.3 percent). The pressure on rupee is very high, requiring major action from the regulators and strong intervention by the Reserve Bank of India (RBI).
Widening Current Account Deficit: India's January-March Current Account Deficit (CAD) widened to USD 13.0 billion (1.9 percent of GDP) from USD 2.6 billion last year. The CAD is expected to widen to 2.5 percent of GDP in FY 2019. Despite the rise, the CAD remains modest relative to GDP and the reason could be large foreign exchange reserves.