The Indian rupee has hit an all-time-low

Eileen GuzmanJun 29, 2018

The Indian rupee collapsed to a lifetime low of 69.10 against the United States dollar by plunging 49 paise in early trade on Thursday as rising crude oil prices deepened concerns about the country's current account deficit and inflation dynamics. It had opened at 68.87 a dollar at the interbank foreign exchange market - against 68.61 previously - and quickly proceeded to set a record. Since 2013, the rupee had firmed up to a high of 58.46 in May 2014 as crude oil prices collapsed.

Brent crude futures surged to Dollars 77.50 a barrel, the highest since 2014, on tight supply.

To fuel its rapidly-growing economy, now 7.7% in the year to March, India has become a major oil importer in recent years, sitting only behind the United States and China as the largest source of global demand. While trade tensions and oil prices have triggered a global risk aversion towards emerging market currencies, Prathamesh Mallya, chief analyst, currency at Angel Broking said U.S. asking India and other countries to stop oil imports from Iran by November 2018 or face sanctions further dented sentiments.

To put the fall in perspective, the rupee has lost 7.7 percent of its value so far in 2018.

The sustained foreign capital outflows have also played a big role. This time the problem is exacerbated by the fact that foreign institutional investors have been pulling out of the Indian capital markets. It does not help that the general elections are coming up next year - a time when most foreign investors go into fence-sitting mode.

Asia's third-largest economy is particularly vulnerable to the fluctuation in oil prices, because it imports 80% of its energy needs. According to brokers, this concern had accelerated selling on the domestic bourses.

Part of the pressure on the rupee was also because of month-end demand.

So how does this situation affect you? "The rupee is definitely under pressure now". It also spells a higher cost of living for those travelling overseas, be it on holiday or to study. The US Federal Reserve's rate hikes have made dollar assets give more returns to investors thereby making emerging market assets look less appealing.

The 30-share BSE Sensex was trading up by 13.92 points or 0.04 per cent at 35,231.03 at 1105 hrs.

Tariffs raise the price of imported goods, increasing costs for manufacturers and pushing up inflation. The laggards included NTPC, Coal India, L&T, Hero MotoCorp, ICICI Bank, Power Grid, SBI, Tata Motors, Adani Ports, Asian Paints, HDFC Ltd, Maruti Suzuki, Yes Bank and Bajaj Auto, falling up to 2.48 per cent. Prospects of a weaker rupee boosted IT stocks, which generate most of their revenue from exports and don't have major import expenses.

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