Rupee breaches 75 against dollar first time ever.

MUMBAI: The rupee hit a new low on Thursday — losing below 75 against the US dollar for the first time — as foreign institutional investors stampeded out of emerging markets. 

The rupee opened weak at 74.96, in line with the gap opening in equity markets and crashed to 75.30 against the dollar, losing more than a rupee against its previous close of 74.23 before firming up to close at 75.12. 

“The FIIs have sold nearly $10 billion. The speed of the sales does not look like they are taking a view on companies; the sales appear to be triggered by trading algorithms or exchange-traded funds,” said Harihar Krishnamoorthy, treasurer, First Rand Bank. 

According to Krishnamoorthy, while the rupee cannot defy the trend in FII sales, several factors could favour it once these sales stabilise. If low oil prices are sustained, there could savings of as much as $50 billion on imports. Gold imports, which have been a drag on the currency, have also come down, and, thirdly, spending on foreign travel under the liberalised remittance scheme will also drop. 

“Nearing close of the session the rupee hit a new low of 75.30, but because there was heavy intervention (by Reserve Bank of India) it recovered to 75.12,” said K N Dey, managing partner, United Financial Consultants. “This will continue for some days and the rupee will hit new lows. Whatever measures the RBI takes—dollar-rupee swaps or intervention—these are financial medicines. But until the disease is addressed, global markets will continue to be volatile,” said Dey. 

He added that RBI also may not want to exhaust its dollar reserves to defend the rupee as it would amount to subsidizing the FIIs’ exit from Indian markets. “Also, the Chinese yuan has weakened by 2.5% to 7.14 against the dollar. They are managing the currency to cover up for lost exports,” said Dey. 

Given that all emerging market currencies are weakening, there is no advantage in keeping the rupee artificially strong. “Exports are already getting hit. Many of the companies we advise are seeing order cancellations. The crisis will end only when the disease comes under control,” said Dey. “In the last 40 years of my career, I have not seen such a disaster in the economic markets,” said Dey.