Indian Rupee Drops to Another Record Low as Foreign Funds Exit

(Bloomberg) — The Indian rupee touched another record low as foreign investors continued to sell the nation’s equities.

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The rupee declined to as low as 80.06 per dollar on Tuesday before reversing losses as traders cited possible central bank intervention. The currency has been buffeted by nearly $30 billion of foreign outflows from the nation’s equities so far this year — a record sum — and concerns over a deteriorating current-account deficit amid elevated oil and commodity prices.

India policymakers have sought to arrest the currency’s decline with a raft of measures — from intervention to raising duties on gold imports — with a weaker rupee adding to imported inflation pressures. Other emerging market currencies are also feeling the heat as a hawkish Federal Reserve lures capital toward the US.

“The risks for the rupee remain to weaken further,” said Dhiraj Nim, economist and FX strategist at Australia & New Zealand Banking Group Ltd. “Oil prices, especially, remain a bit volatile, while external headwinds on account of Fed tightening may continue. The trade imbalance also remains wide.”

India’s central bank sees the rupee as moving toward its fair value and will step in to sell dollars from its reserves when it assesses a genuine shortfall, according to people familiar with the matter. Traders cited RBI intervening in the forex market as the currency breached 80 to a dollar.

The currency has declined 7% this year as a shortfall in India’s current account — the broadest measure of external finances — will probably widen to 2.9% of gross domestic product in the fiscal year ending March 31, according to a Bloomberg survey in late June, nearly double the level seen in the previous year. The rupee ended little changed at 79.95 a dollar on Tuesday.

India’s central bank is for an orderly appreciation or depreciation in the currency and is intervening in all market segments to curb volatility, Governor Shaktikanta Das said earlier this month.

Strategists at Nomura Holdings Inc and Morgan Stanley continue to remain bearish on the rupee, forecasting the currency may decline to 82 to a dollar by September. Options pricing suggest that there is 67% probability for the rupee to decline to that level between now and end-December, up from 50% at the start of July.

The Reserve Bank of India has foreign-exchange reserves of almost $600 billion, which it has been deploying to protect the rupee. Authorities have raised duties on gold import and raised levies on petroleum exports. The monetary authority has also announced measures to draw more forex inflows into the country and allowed rupee settlement of trade.

(Updates with central bank intervention in the fifth paragraph)