After showing a little bit of stability over the past couple of months, the Indian rupee has once again started to lose ground against the US dollar and dollar-pegged currencies such as the UAE dirham.
The rupee was trading at 17.33 against Dh1 (Rs63.65 vs. $1) at 10.20am UAE time today on renewed global concerns about the US Federal Reserve’s tapering off of its quantitative easing programme.
This is the lowest level that the rupee has seen in 2 months, and has been the weakest among BRIC currencies this year. The rupee had in fact improved to Rs16.50 vs. Dh1 (Rs60.62 against $1) last month, on October 22, 2013.
The currency has, however, since declined by 5 per cent in three weeks, and may be in for a further battering this month despite the recent encouraging trade data publicised by the Indian government.
Inflation in India is expected to have shot up by a massive 10 per cent in the past 12 months, which is further putting pressure on the beleaguered currency.
In addition, consistently improving US economic data is making global investors dump the emerging market’s debt in favour of the safer greenback.
Analysts believe that the rupee’s immediate term fortunes hinge on the timing of the announcement of the paring of US stimulus, and if that announcement comes within the next couple of months, the rupee may come under some serious selling pressure.
India yesterday announced a surge in its October trade deficit to $10.56 billion, more than the $9.6 billion that economists had expected.
The deficit is almost 60 per cent more than the $6.7 billion announced last month (for the month of September), which was a two-and-a-half-year low.
The growth in deficit is being attributed to more Indians buying gold in October, ahead of the Diwali festival season. The country is, however, trying to maintain a tight control over its imports, which fell 14.5 per cent to $37.83 billion in October, while exports rose 13.47 per cent to $27.27 billion.
The market, however, seems to be ignoring the positive trends in imports and exports, and may be factoring in the impending US stimulus announcement.
This will continue to put pressure on Indian assets, including the rupee and its equity markets, unless the US Federal Reserve rules out tapering in the short-term.