Without RBI’s help, Rupee value might slump to 80 per dollar says report

• If the Reserve Bank of India continues to avoid interfering in the value of Rupee, it could fall to as low as 80.
  
• Flight of capital due to the Coronavirus pandemic and plummeting US crude oil prices have piled on the pressure on rupee.
  
• On a positive note, low crude oil prices could help India maintain a surplus in its balance of payments.
  

The Indian Rupee could slump as low as 80 per dollar as the Reserve Bank of India has so stayed away from propping it up. Coupled with the plummeting crude oil prices and continuous FDI outflows, will push it towards historic lows, says a Bloomberg report.

“Flight from risk and associated capital flows out of India are piling downward pressure on the Rupee. The Reserve Bank doesn’t appear poised to go all out in its defense. Bloomberg Economics’ FX model indicates the currency could extend its tumble by nearly another 6% by mid-year,” Bloomberg’s latest report says.

Rupee has fallen by 7.7% since the beginning of 2020

The Indian rupee has seen a drastic decline since the beginning of 2020. It closed at 71.32 against the US dollar on December 30, 2019. Since then, it has fallen by 5.51 to close at 76.83 today (April 21).

The weakness in Indian currency came on the back of the crash in the US oil prices and slump in the domestic stock market, an analyst told IANS.

The historic plunge in crude oil futures is a major factor for the weakness in rupee on Tuesday. On Monday, for the first time ever, WTI crude futures fell below zero and reached an all-time low of -$40.32 per barrel due to a supply glut and declining storage capacity in the US.

The Indian stock markets have seen bloodbath in 2020

The year of 2020 hasn’t exactly been good for the Indian stock markets either. The BSE Sensex fell by more than 25% since the beginning of 2020, falling from 41,253 on December 31, 2019 to 30,636 as on April 21, 2020. It witnessed its biggest weekly fall since the 2008 financial crisis, after plunging by 3,900 points in a single day.

According to data obtained from the bourses, foreign investors withdrew ₹1,12,188 crore in March alone, highlighting the widespread fear in the markets due to the fast spreading Covid-19 pandemic.

India’s balance of payments will be at $5 billion surplus

The weak demand for fuel due to the Coronavirus lockdown worldwide has led to crude oil prices plummeting. In spite of a crash in futures, US crude oil prices are hovering around the $15 per barrel mark, Brent crude is in the range of $25-30.

India, which imports mostly Brent crude, has already gained since the prices are now at least half of what they were last year. “Overall, we project that the balance of payments will remain in surplus at about $5 billion in the first quarter in 2021 and $10 billion in the second quarter,” the report added.

The report states that foreign direct investment will act as a counter to any foreign portfolio investment outflows.

See also:

Rupee plummets by 30 paise— at 76.83 against US dollar in early trade

Crude oil prices didn’t fall below zero, futures did – and here’s what it means