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Rupee closes at record low of 76.34 on stimulus fears, heavy dollar-buying

FE Bureau
The rupee lost 6.5% so far in 2020, making it the third worst performer in Asia after the Indonesian Rupiah and the Thai Baht.

The rupee on Wednesday fell by 70 paise to close at a record low of 76.34 against the dollar. Currency dealers say heavy dollar-buying by custodian banks and negative sentiment on the domestic currency in the wake of increasing Covid-19 cases in the country that could lead to the extension of the lockdown put pressure on the rupee.

Dealers also indicated that there is a widespread expectation in the market that the government may announce further stimulus measures which could be larger in quantum compared to the measures announced earlier and the subsequent possibility of the fiscal deficit getting hit by a wide margin is also weighing on the domestic currency. The dollar index, which tracks the strength of the US dollar against a basket of US trade partners' currencies was trading around 100.11 on Wednesday evening, having come down from the highs of 102.82 seen on March 20.

Abhishek Goenka, CEO at IFA Global, told FE that there was huge dollar-buying by custodian banks that cater to foreign portfolio investors on Wednesday. "The dollar-buying by custodian banks could be because of the some capital market outflows or due to some ECB hedges. At the same time, we feel that RBI is unlikely to have intervened in the currency markets on Wednesday. Both these factors combined have put pressure on the rupee," Goenka said.

The rupee lost 6.5% so far in 2020, making it the third worst performer in Asia after the Indonesian Rupiah and the Thai Baht. Foreign portfolio investors (FPIs) have pulled out over $17 billion from the Indian capital markets since the beginning of March. Meanwhile, crude oil prices have also rebounded from the lows seen a few weeks back. Brent crude which was trading at as low as $21.65 per barrel during the end of March has rebounded significantly over the last few days. After surging 3.4% in intra-day trade on Wednesday, Brent crude pared much of its gains and was trading at $32.02 per barrel, up 0.5%.

Rahul Gupta, head of research-currency at Emkay Global Financial Services, said he expects the rupee to depreciate to 77.20 levels. "There are reports stating that further stimulus measures are likely to be announced by the government. The market is expecting this stimulus package to be about Rs 2-3 lakh crore. If that comes, the fiscal deficit is definitely going to take a hit. These worries are showing up on the domestic currency taking it to an all-time closing low. Crude oil prices have also rebounded recently," Gupta said.