The rupee weakens to near its record low
The rupee crashed at the start of the final quarter, with the domestic currency in sight of another key level of 82 per dollar, as crude prices jumped on likely production cut by oil producers, which led to fears of even higher inflation and more aggressive policy response from central banks.
The Organization of the Petroleum Exporting Countries and its allies, known as OPEC+, said that they would be considering lowering output, which caused oil prices to increase by more than 4 per cent.
That rise in crude prices hurt the domestic currency as the country imports over three-fourths of its oil needs, leading to fears that India’s already stretched balance of payments could widen even further.
PTI reported that the domestic currency plunged 49 paise to close provisionally at 81.89 against the greenback.
Bloomberg showed the rupee was last at 81.89 per dollar, not very far from its record low of 81.95 and significantly weaker than its close of 81.35 on Friday.
What did not help the rupee was India’s factory growth falling to a three-month low, and also domestic bourses crashed at the start of October on Monday after a 10 per cent surge in the previous quarter.
According to Reuters, the Reserve Bank of India likely sold dollars via state-run banks on Monday as rising oil prices and weak risk appetite pushed the rupee to within striking distance of record lows.
The intervention by the RBI was confirmed to Reuters by two bankers and two brokerage firms.
The intervention on Monday was similar to recent sessions where the RBI has been trying to ensure that the rupee does not fall below 82, one of the bankers told Reuters.
Even the British government’s tax U-turn that had rocked British markets didn’t seem to improve the general mood, even as that helped the pound recoup all its losses.
Following the UK policy change, the battered pound of Great Britain was up about 0.5 per cent at $1.1200 and its government bond yields dropped, driving up their price.
“From a market perspective, it is a good step in the right direction. It will take time for markets to buy the message but it should ease the pressure,” said Jan Von Gerich, Chief Analyst at Nordea, told Reuters. “Questions still remain and sterling will likely remain under pressure,” he added.
While Japan’s finance minister, Shunichi Suzuki, promised that the country will take “decisive actions” to prevent sudden changes in currency, the yen temporarily dropped as low as 145.4 to the dollar.
Monday’s drop below the 145 threshold was the first since September 22, when Japan intervened to support its currency for the first time since 1998.
“Each time (dollar/yen) gets to 145, it gets people excited. But it’s the magnitude of the move that sometimes matters,” Christopher Wong, a Currency Strategist at OCBC, told Reuters.
“That said, we remain watchful and won’t rule out stealth yen intervention if the magnitude of the yen’s decline increases again, perhaps when it breaches 146, using current levels as reference,” he added.
Due to holidays in China, South Korea, and certain Australian states, Asian trading was thin on Monday.
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