As Rupee Hits 16-Month Low, Analysts Warn Of “Sharp” Likely Fall Ahead If Coronavirus Cases Rise Further

As Rupee Hits 16-Month Low, Analysts Warn Of "Sharp" Likely Fall Ahead If Coronavirus Cases Rise Further thumbnail
Analysts say the markets will closely monitor any steps aimed at shielding the economy from coronavirus The rupee depreciated by a total 163 paise against the US dollar - or 2.26 per cent - this week, as investors around the globe assessed the severity of the coronavirus outbreak and its impact on world economy. On…

Analysts say the markets will closely monitor any steps aimed at shielding the economy from coronavirus
The rupee depreciated by a total 163 paise against the US dollar – or 2.26 per cent – this week, as investors around the globe assessed the severity of the coronavirus outbreak and its impact on world economy. On Friday itself, the rupee shed 0.74 per cent (54 paise) to end at 73.87, gaining some ground after slumping to as low as 74.08 – 40 paise away from its all-time low recorded in October 2018 – against the greenback during the session. Going forward, analysts say the rupee may slump to a record low as the coronavirus outbreak continues to spook the financial markets. Here are 10 things to know about the rupee-dollar (INR vs USD) pair:Friday’s fall meant the currency continued its decline after a day’s breather. It had clocked its first gain the previous day after five straight sessions of depreciation. Possible intervention by the RBI arrested the depreciation in the rupee, said Rahul Gupta, head of research-currency at brokerage Emkay Global Financial Services. Equity market benchmark indices S&P BSE Sensex and NSE Nifty shed 720.67 points and 212.3 points to log weekly losses of 1.88 per cent and 1.90 per cent respectively. A selloff in global stocks hurt market sentiment, as the fast-spreading coronavirus killed several thousands and disrupted supply chains across the world.Crude oil prices slumped on Friday in their biggest single-day loss recorded since December 2008, declining by $4.72, or 9.4 per cent, to end at $45.27 a barrel on Friday – the lowest closing since June 2017. For the week, Brent crude futures – the global benchmark for crude oil rates – tumbled 10.39 per cent. A fall in crude oil prices typically augurs well for the rupee as it helps India – which meets more than 80 per cent of its oil requirement through imports – trim its import bill, leading to narrower trade deficit. However, this week volatility continued to hurt the markets as investors succumbed to fears of recession in major economies due to the virus, say analysts. “The rupee is likely to remain vulnerable to coronavirus outbreak and we will witness similar volatility as seen in the current week. The pair is driven based on news and sentiments where negatives are weighing over positives at the moment,” said Amit Pabari, managing director at CR Forex Advisors, a forex advisory firm. The Reserve Bank of India (RBI) said it is monitoring the global as well as domestic situation closely and “stands ready to take appropriate actions to ensure orderly functioning of financial markets”. While many analysts say the RBI has enough firepower to manage the volatility in rupee, some fear if coronavirus disruptions increase the rupee may breach 74.48 to a fresh all-time low.“In India, witnessing the efforts taken by government to contain the coronavirus spread, the (rupee-dollar) pair shall stablise once the panic is subsided,” added Mr Pabari. “If the virus is contained, the pair will normalise towards 72.00-72.50 levels.”Moves by some major economies, including the US, to cut interest rates and pledge funds to fight the epidemic have done little to allay fears about the spread of the disease and the economic fallout. Back home, RBI Governor Shaktikanta Das reiterated there’s room to cut interest rates if needed. Going forward, the markets will closely monitor any announcements by the RBI or the government on possible intervention to shield the economy from the coronavirus outbreak, added Emkay Global Financial Services’ Mr Gupta. “On upside crucial resistance lies at 74.48 (all-time low) and if the rupee consistently trades above that mark then highly unsustainable levels around 75.0-75.50 are expected, which will likely be followed by a reversal,” he said. “But any updates about a rise in coronavirus cases will lead to sharp depreciation in rupee.”
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