Rupee breaches 94, worst fiscal year fall in over a decade

MUMBAI: The rupee breached the 94 level for the first time to close at 94.81 per dollar after hitting a record low of 94.84, declining about 4% since late Feb and 11% in the current fiscal year, marking its worst financial year performance in over a decade.Many analysts are forecasting that oil prices will remain above $100 per barrel for several weeks, pushing up the import bill and inflation. Dealers said that pressure on the rupee has been driven more by heavy foreign investor selloffs than by the West Asia conflict, with outflows crossing $13 billion this month, an all-time high.

“More than the West Asia war the pressure on rupee is from heavy sell off by the FIIs, which has already crossed more than 13 billion dollars this month. Which itself is an all time record. In case of de-escalation there would be a correction of at least 2%. Also there is an expectation of $4.4 billion dollars inflows from the Mitsubishi-Shriram Finance deal . This will severely boost the falling Rupee,” said KN Dey, a forex consultant.Domestic equity markets declined sharply, while benchmark bond yields rose to multi-month highs, reflecting tightening financial conditions. Foreign investors accelerated outflows from domestic equities and bonds amid heightened concerns over inflation, currency weakness, and external imbalances.Growth forecasts have been revised downward, while expectations of interest rate hikes over the next year have strengthened. Govt has cut excise duty to keep fuel prices under check, but the move is expected to put pressure on the fiscal deficit and increase borrowing.

Despite some signals of de-escalation, the currency remains under pressure amid sustained global uncertainty. “The rupee is expected to trade in a weak range of 93.25–94.25, with downside bias likely to persist until clear progress in Iran peace talks emerges,” said Jateen Trivedi, analyst with LKP Securities.