The rupee tumbled to a record low and stocks fell as global funds dumped Indian assets amid rising odds for a U.S. interest-rate increase and a slump in local yields damped the appeal of the nation’s debt.
The currency plunged to an unprecedented 68.8650 per dollar Thursday, falling past its previous low of 68.8450 reached on Aug. 28, 2013. It ended 0.3 percent lower at 68.7475 in Mumbai. HDFC Bank Ltd., the top rupee forecaster based on Bloomberg’s quarterly rankings, doesn’t see the losses sustaining and predicts a recovery to 68.50 by the end of the year, according to Tushar Arora, senior economist for treasury at the lender.
Emerging markets have sold off this month as speculation mounts that Donald Trump’s reflationary policies will mean a quicker pace of monetary tightening by the Federal Reserve. Concern that he will take a more protectionist approach to trade has also weighed on developing-nation assets. The immediate target for the rupee would be 69 per dollar in the absence of aggressive intervention by the Reserve Bank of India, Madan Sabnavis, chief economist at Credit Analysis & Research Ltd. in Mumbai, wrote in a note.
The S&P BSE Sensex index of local shares slid 0.7 percent on Thursday, ending a two-day gain. Foreign holdings of Indian government and corporate bonds have dropped by 97.2 billion rupees ($1.4 billion) in November, set for the biggest decline since April 2014, National Securities Depository Ltd. data compiled by Bloomberg show. Overseas investors have withdrawn a net $1.9 billion from stocks.
“Continued outflows along with dollar strength have undermined the rupee,” said Gao Qi, a Singapore-based foreign-exchange strategist at Scotiabank. “The rupee may outperform some regional currencies such as the Malaysian ringgit and Indonesian rupiah on account of the central bank’s intervention and low foreign position in Indian financial assets.”