Indian Rupee fell to record low as dollar strength slumped demand for risker assets and as foreigner continued to dump Indian equities.
The rupee dropped as much as 0.7% to 77.4337 a dollar on Monday while the benchmark S&P BSE sensex Index retreating 1.5%.
“It’s clearly about dollar strength, as well as a function of oil,” Ashhish Vaidya, head of treasury and markets at DBS Bank Ltd. in Mumbai, said on Bloomberg TV.
“As far as oil is buoyant, the rupee will continue to be under pressure.”
The move underscores foreign funds outflow of record $17.7 billion from Indian equities this year amid surging inflation and aggressive monetary tightening by global central banks.
A surprise rate hike by India’s central bank hasn’t been able to stem the rupee’s decline as a widening current-account deficit amplifies concerns.
The Reserve Bank of India’s “recognition of the need for urgency in normalizing policy” has provided some support, BNP Paribas strategists Siddharth Mathur and Chidu Narayanan wrote in a note.
“However, as equity flows can dominate interest-rate sensitive flows, there is a high downside risk to the rupee from a deterioration in equity market sentiment as a result of a rapid tightening in domestic financial conditions.”
