Rupee won't be insulated, says expert

Mumbai: The rupee plunged to yet another record low on Tuesday breaching the psychological 70 level mark against the US dollar as concern regarding the currency crisis in Turkey spreading to other emerging markets forced investors to shun riskier assets and seek the safety of US dollar.

“Current sharp movement and volatility in the rupee is essentially reflecting the global risk aversion amid recent geopolitical developments that led to plunging of Turkish Lira and Russian Rouble. Global investors have been shying away from risky emerging market assets in general, keeping emerging market forex including the rupee precarious,” said Sajal Gupta, head of forex, Edelweiss Securities.  Apart from the US-China led trade rhetoric’s, he said the US Federal Reserve’s reiteration of its steady rate path and the emerging concerns around major European banks’ exposure in Turkey have added another layer of uncertainty in the markets. “The rupee dynamics are unlikely to remain insulated from EM despite recent correction in crude prices,” he added.   

Forex market participants said that the steep fall in the rupee on Monday caught lot of importers off-guard due to which there was panic buying of dollars. “The rupee had enjoyed good psychological support at 69 level mark and once that got taken out in one of the biggest single day fall in last five years, a sense of panic has set in. Importers were seen aggressively buying dollars in the forward market putting further pressure on the rupee,” said Abhishek Goenka, chief executive officer (CEO), India Forex Advisors. If the current crisis persists and the global risk-off sentiment continues, Mr Goenka said the rupee could further weaken and head towards 72 – 73 a dollar in the coming weeks.

Experts are also concerned about the impact of rupee weakness on India’s current account deficit. The falling rupee would make imports costlier putting additional pressure on India’s CAD.