The rupee Monday crashed below the 72-mark to end at a life-low of 72.45 against the US dollar on growing fears of contagion from an emerging-market rout and escalation of a global trade war.
Heavy speculative dollar demand along with panic among importers sent the domestic currencytumbling by a sharp 94 paise to hit a historic low of 72.67 in mid-morning trade, triggering the central bank intervention to defend the currency.
It finished the day 72 paise lower against the American currency – its biggest one-day crash since August 13.
After a short-lived recovery, forex market sentiment once again turned volatile after US President Donald Trump decided to raise the economic and financial stakes of the global tradewar on Friday.
Adding to the fundamental stress, Trump also announced that the US administration was considering another USD 267 billion in tariffs on Chinese imports.
The rupee had recovered on Friday to close 26 paise higher after a seven straight-day decline.
Widespread concerns about the country’s growing trade deficit as well as short-term debt liabilities and protectionist tendencies on the global front largely weighed on forex front, currency dealers said.
Besides, rising oil prices and the weakening currency have already impacted the sentiment here.
India’s current account deficit (CAD) as a percentage of GDP declined marginally to 2.4 percent in the April-June quarter of 2018-19 against 2.5 percent in the year-ago.
Strong portfolio outflows alongside RBI’s dollar sales to contain sharp rupee depreciation, resulted in depletion of foreign exchange (forex) reserves to USD 400.101 billion in the week to August 31, an RBI data showed.
India’s biggest jump in foreign-exchange reserves in the last few years helped the nation to support the rupee.
India’s benchmark 10-year sovereign yield plunged 13 basis points to 8.16 percent.
Emerging market currencies and global stocks slumped as the dampened sentiments gripped the markets.
Crude prices rose as investors anticipated lower supply once the new US sanctions against Iran’s crude exports kick in from November.
Benchmark Brent crude oil was up USD 77.22 a barrel in early Asian trade.
In the meantime, domestic bourses witnessed heavy sell-off with key indices ending at fresh three-week low.
The country registered a robust 8.2 percent growth in the April to June quarter.
Meanwhile, sustained weakening of the rupee is credit negative for Indian companies which generate revenue in rupees but rely on US dollar debt to fund their operations, Moody’s Investors Service said.
At the inter-bank foreign exchange (forex) market, the rupee opened with a gap-down at 72.18 against weekend close of 71.73.
It quickly extended the losses in the morning deals to hit a record low of 72.67 prompting the RBI intervention in the currency market.
The pullback helped the rupee touched a session high of 72.07 before ending at 72.45, revealing a sharp loss of 72 paise, or 1.00 percent.
The Financial Benchmarks India private limited (FBIL), meanwhile, fixed the reference rate for the dollar at 72.5745 and for the euro at 83.8081.
In the cross-currency trade, the rupee continued to drift against the Pound sterling to finish at 93.66 per pound from 93.19 and dropped against the Japanese yen to close at 65.21 per 100 yens compared with 64.70 earlier.
The home unit also fell back against the euro to end at 83.83 from 83.25 last Friday.
Globally, the US dollar traded little changed against major rivals as trade tensions outweighed expectations for a prospect of faster rate rises by the Federal Reserve after data on Friday showed US job growth accelerated in August and wages notched their largest annual increase in more than nine years.
Against a basket of other currencies, the dollar index is higher at 95.13.
In the forward market, the premium for dollar edged higher owing to fresh paying pressure from corporates.
The benchmark six-month forward premium payable in January 2019 rose to 123.50-125.50 paise from 120-122 paise and the far-forward July contract also moved up 278.75-280.75 paisefrom 272-274 paise.