Why Rupee Hit Nine-Month Low against Dollar - NDTV

The rupee slipped to 62.22 per dollar on Thursday, its lowest since February 20, 2014. The weakness in the rupee is bad news for importers, who will have to pay more money to bring raw materials in to the country. It is also bad news for the economy because India runs a current account deficit.

Here are the reasons for the weakness in the rupee,

1) Broad dollar strength: The greenback continued its march against global currencies on prospects of a stronger US economy. Rising dollar hurts the rupee. (Also read: Rising Dollar Threatens Rupee)

2) Most global currencies are weakening because of economic slowdown. In Japan, where the economy has slipped into a recession, the yen hit a seven year-low against the dollar yesterday. The euro has also weakened against the dollar.

3) Dollar flows in the country seem to be slowing down. Foreign institutional investors have bought equities worth $15.50 billion and debt worth $23 billion year-to-date, driving stocks and supporting the rupee.

4) Among domestic reasons, the immediate trigger seems to be the buying of dollars by state-owned banks, analysts say. Banks have accelerated their greenback purchases to make the most of falling crude prices, which are hovering around four-year lows. "The dollar demand from oil companies should continue at least till the end of the month," said Anish Vyas, a currency analyst at Angel Securities in Mumbai.

5) Buying of dollars by the Reserve Bank of India has also put pressure on the rupee. The RBI has been a net buyer of the greenback to increase its import cover, which currently stands at around eight months, analysts say.

Is there a reason to worry: Analysts don't fear the rupee to slide beyond 62.25 in the short-term. Traders say relatively better economic fundamentals in India could protect the rupee from steep falls compared with other emerging market currencies. Sharp volatility will force the central bank to step in to sell dollars, analysts say. In the offshore non-deliverable forwards, the one-month contract was at 62.26/36, while the three-month was at 62.83/93.

(With inputs from Reuters)