Rupee sinks to two year low at 65.43 per dollar

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The Indian rupee which is in free fall has breached the psychological 65 per dollar, hitting a two year low touching 65.43 per dollar during the trading session on August 19. The rupee has depreciated by 2.4 percent in the last one week. Though panic hasn’t struck yet it has begun to raise concerns. However, some analysts believe if the rupee breaches the 67 per dollar mark it would pressurise the domestic markets further and may create panic among investors.

China’s devaluing of the yuan has further aggravated the concerns among investors. The yuan devaluation could make the Indian exports fall further. The Indian exports have already been shrinking over the last seven months. Indian exports would become uncompetitive with further devaluation of the yuan.

There have been some policy measures taken by the Reserve Bank of India to try and prevent further slide of the rupee such as public sector banks selling dollars to help stabilise the currency. If the rupee continues to slide further, it may lead to capital outflows from both the equity as well as debt markets as the foreign institutional investors who are usually unhedged will start liquidating their position and the outflow would lead to further fall in the value of the rupee.

The Indian rupee is faring better than its other peers in the emerging markets and market participants are optimistic that the rupee slide would be arrested. Forex dealers said apart from sustained demand for the US currency from importers and dollar’s gain against other currencies overseas, lower opening in domestic equity markets put pressure on the rupee.

RBI Governor Raghuram Rajan had previously said, “the central bank would not target a specific exchange rate and would only intervene to smoothen volatility.”

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