The rupee hit an all-time low of 68.86 against the US dollar which has been surging on the back of expectations that US President-elect Donald Trump may announce a fiscal stimulus to boost the US economy . Adding pressure to Indian forex markets was the realization that there would be short-term negative impact on growth due to demonetisation.Continuous selling by foreign funds in the Indian markets too weighed on the domestic currency , economists said.
The rupee, however, gained in the afternoon trade and closed at 68.75 to a dollar, weaker by 18 paise from its Wednesday close. The intra-day trend reversal was attributed to RBI's intervention that sold sold dollars.
Trump's victory has led to expectations that the US will follow a growth-oriented policy by boosting government spending. This has resulted in a surge in US treasury yields resulting in funds flowing out of emerging markets to US treasuries. The Malaysian ringgit on Thursday fell to levels last reached after the Asian Currency crisis in 1998. Among other currencies, the Indonesian Rupiah, the Korean Won and Chinese Yuan also weakened.The yuan saw its sharpest monthly drop since August 2015.
Deutsche Bank has said that the rupee could sink to the 70-level by end-December. HSBC lowered its forecast to 68 for December and a further fall to 69.5 in 2017, which is also the level DBS India has predicted. Until US Fed's rate hike meeting (on December 13-14), DBS India expected the rupee to remain under pressure.
According to Vaidya, demonetisation has not done any harm to the rupee and the weakness in the Indian currency is due to a stronger dollar. The surge in deposits with banks had made India more resilient than other countries for some time but when markets realized that growth would be hit in the short-term, there was a correction, Vaidya said.
Despite the weakening forex dealers are saying that the domestic currency is far more resilient compared to the days of “taper tantrums“ in 2013 when the rupee was last seen around current levels.