The Indian rupee fell to a record low on Tuesday as declines in the domestic equity market and weakness in other Asian currencies on fears of a global recession weighed on the unit, despite recent central bank moves to boost the inflow of dollars.
The euro approached a 20-year low near parity with the dollar amid concern that an energy crisis could tip Europe into recession, while the US Federal Reserve continues to aggressively tighten policy to curb inflation. The partially hedged Indian rupee was trading at a record low of 79.60 per dollar at 0446 GMT, compared with a close of 79.4375 on Monday.
“We could see 80 levels in USD/INR very soon. The only force keeping it from falling there is the RBI. But with most other Asian currencies falling, we should get there sooner rather than later,” said a senior trader. from a private bank. All Asian currencies were trading weaker against the dollar. [EMRG/XRF] Traders expect the Reserve Bank of India (RBI) to sell dollars through state-owned banks to avoid a runaway depreciation like the one in recent months.
The RBI last week adopted a series of measures to boost foreign exchange inflows, including allowing foreign investors to buy short-term corporate debt and opening more government bonds through the all-access route.
On Monday, the RBI introduced a mechanism for trade settlement in rupees, a move that is expected to reduce demand for foreign exchange and ease pressure on the currency. Traders will be watching consumer price inflation data for June, due at 1200 GMT on Tuesday, for near-term clues. India’s retail inflation likely remained stable in June, but well above the Reserve Bank of India’s tolerance limit for a sixth month, as lower fuel and cooking oil prices offset the rise in the costs of services and food, according to a Reuters poll.