India: Rupee weakens to an all-time low versus USD
June 19, 2013
By the end of May, the Indian rupee (INR) traded at 56.6 per USD, which was 5.4% weaker than the level registered by the end of the previous month. Moreover, by 19 June, the INR intensified its decline, breaking all its support levels by falling to 58.8 INR per USD, which was 7.2% weaker than in the same day of the previous month, entering into levels never seen before.
While some pressure came in on the back of feeble GDP growth in the last quarter of the fiscal year 2012/2013 and capital outflows were witnessed in the debt market as foreign investors sold Indian debt on account of profit booking, the sharp weakening of the INR against the greenback primarily reflects the recent speculation on the timing in which the Federal Reserve will start unwinding its asset purchases.
More recently, however, the INR has recovered some of the lost ground, as the Reserve Bank of India (RBI) stepped in into the foreign exchange market in order to slow the rupee's slide. Moreover, at its 17 June monetary policy meeting, the RBI decided to keep its repurchase rate unchanged, following three consecutive cuts, as monetary officials expect some inflationary pressures in the coming months, mainly as a result of the weakening rupee. In addition, in a surprising move, ratings agency Fitch upgraded India's outlook to stable from negative, which also provided a slight boost to the currency.
Analysts polled by FocusEconomics Consensus Forecast are still pencilling in the recent developments and they expect the rupee to trade at 54.4 INR per USD by the end of this fiscal year. For the fiscal year 2014/15, the panel projects that the rupee will close the year at 53.6 INR per USD.