The rupee fell to its record low level of 68.862 during the intraday trade on Thursday on account of buying of the US dollar by the banks and importers.
NO NEED FOR PANIC ON RUPEE FALL, GOVT MONITORING SITUATION: OFFICIAL
Here are the top five factors that are putting pressure on the Indian rupee.
Foreign money outflow: Since November 1, India’s 10-year bond yield plunged over 60 basis points till date. However, the US 10-year bond yield increased to 2.35 per cent against 1.82 per cent on November 1. This has prompted FPIs to offload some of their holdings in India market.
Surging dollar: The dollar index hit a fresh 13-year high on Wednesday on account of robust US data, indicating the economy is in good health. The rally in the dollar has weighed on most emerging market currencies including the rupee, Indonesian rupiah, Thai baht, Philippines peso and Malaysian Ringgit.
FCNR Redemption: The Reserve Bank had floated a special FCNR (B) deposits in September 2013 to calm the rupee through which it had raised close to $29 billion. It may be recalled that the rupee had touched a low of close to Rs 68 to the dollar in September 2013. There have been apprehensions that the redemption pressure of these deposits could create excessive US dollar demand.
Liquidity in the system: According to Edelweiss, at a time when physical currency liquidity with citizens has declined after demonetisation the interbank liquidity has shot up considerably.
On November 23, the banks offered nearly Rs 1.2 lakh crore under reverse repo window, which were accepted. Edelweiss believes this excess liquidity in the banking system and the shortage of US dollar due to FCNR redemption would continue to keep the rupee under pressure for the month of November.
US Fed rate hike: According to market watchers, there is around 90 per cent probability that the US Federal Reserve will increase interest rates in December. The possibility of the rate hike is prompting funds managers, who had monies at virtually zero interest rates, move out partially and book profits in emerging markets, including India.