Rupee plunges to all-time low, indices slide

Mumbai: The rupee plunged to a record low Monday, tracking peers in the region, as concerns mount over widening deficits in a large oil importer such as India where the goal of ensuring export competitiveness could determine the extent of central bank intervention in the currency markets. Stocks fell on concerns of a global growth slowdown due to fears that central banks may tighten monetary policy further to quell inflation. A harder lockdown in Shanghai added to investor woes.

The rupee lost 0.72% Monday to close at 77.46 per dollar, breaking its erstwhile record of 76.97 reached on March 7. The rupee weakened as much as 77.53 in midtrade.

"With the Life Insurance Corp (LIC) share-sale event behind us, macro factors including oil, dollar strength and weakening peer currencies collectively brought the rupee under pressure," said Bhaskar Panda, executive vice president, HDFC Bank. "We did not observe any desperate attempt to cut the rupee's rout. The local unit may continue to slide unless the broader trend changes."

RBI Intervention
To be sure, the rupee remains a relative outperformer among Asian emerging market peers, especially when compared with China. The yuan has fallen 5.52% this year. The rupee has lost more than 4% to the dollar this calendar year, ranking sixth among Asian peers.

The Sensex ended 0.7% down on Monday at 54,470.67 points and the Nifty ended down by a similar degree at 16,301.85 points, after having dropped 4% to record the worst weekly loss since November on Friday.

"These risks mean that markets will remain with a downward bias for a medium period of time," said Piyush Garg, CIO, ICICI Securities. "Markets can correct another 10-15% from current levels and trade close to 16 forward PE (price to earnings) if interest rates go much higher from current levels and there is a likelihood of bank deposit rates crossing 7%." The RBI is said to have intervened through the futures market as it sought to protect forex reserves, dealers said. The quantum of intervention is estimated to be lower than $1 billion, the minimum needed to pre-empt wild swings.

"It was a measured intervention by the RBI on Monday," said the chief dealer at a large bank. The Bloomberg Dollar Index, which measures the unit against other major currencies, shot up to 103.84, the highest since December 31, 2002.

"The Dollar Index is going through the roof on the back of global investor risk aversion amid the Russia-Ukraine war and expectations of higher interest rates," said Hemant Mishr, cofounder and CIO, SCUBe Capital, a Singapore-based global fund. "The dollar rally is broad-based and in line with market fundamentals. The rupee cannot remain out of sync, particularly when the yuan is losing value sharply as this has implications on India's export competitiveness."