Problems for rupee resurfaces as capital outflows weakens the currency

Rupee lost 49 paise against Dollar on Tuesday amidst domestic cash disturbances and a distant prospect for interest rate hike in the US. More than the cash stalemate, it was the expectation about a Fed rate hike that weakened the currency. Rupee reached a five-month low of 67.72 against dollar at the end of trading on Tuesday.

Several EME currencies also undergone weakness against dollar. The Chinese Yuan reached its eight year low against the US green back. Chinese officials who follows a fixed exchange rate system allowed yuan to depreciate to 6.8495 against their target of 6.83. Yuan’s low will help Chinese exports. On the other side, the US is losing competitiveness amidst Trump’s promise of regaining export performance.

For rupee, the slow depreciation should not be read a reaction of the foreign investors to the domestic monetary chaos. At the same time, the exodus from both equity and debt market is a vote of distrust and should be arrested.

Foreign investors sold nearly Rs 2500 crore worth of equities and debt last day. They fear fall in income and corporate revenues in the coming quarters because of the continuing liquidity crunch. US Fed’s anticipated interest rate policy is just triggering capital outflows. 

Share Now