Rupee breaches 69 per dollar for the first time, may lead to high inflation, worsen current account deficit

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Rupee breaches 69 per dollar for the first time, may lead to high inflation, worsen current account deficit

Posted on : Thursday 28th of June 2018

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New Delhi: The embattled Indian Rupee plunged by 28 paise to hit an all-time low of 68.89 against the US dollar on Thursday morning on strong month-end dollar demand from importers and banks amid sustained foreign capital outflows. Minutes later,  rupee collapsed to a lifetime low of 69.10 against the US dollar by plunging 49 paise.

Consistent dollar demand from banks and importers, mainly oil refiners, following higher crude oil prices kept the rupee under pressure. Meanwhile, the benchmark Sensex was down by 90.26 points, or 0.25 percent, at 35,126.85 in early trade today.

On Wednesday, rupee plunged by 37 paise or 0.54 percent to settle at a 19-month low of 68.61 against the US dollar as growing crude oil prices fanned fears of a widening current account deficit and a spike in inflation. This was the lowest closing for home currency since November 24, 2016, when it had settled at 68.73.

Investors grew more nervous that higher crude oil prices will worsen India's current account deficit and fuel inflation.

After a short break, crude oil prices rebounded after the US asked its allies to end all imports of Iranian oil by a November deadline. Concerns over supply disruptions in Libya and Canada also flared up the prices.

The currency market was nervous after RBI painted a gloomy picture of the banking sector in its bi-annual financial stability report.

Higher inflation, concerns over fiscal deficit and hawkish stance from the RBI have driven up bond yields, hurting bond prices. The 10-year benchmark bond yield shot-up to 7.87 percent from 7.83 percent.

Currency traders were also worried about the future of global trade against the grim backdrop of an escalating trade rhetoric between the US and China.

A massive selloff in domestic equities further added pressure fearing heavy capital outflows.

Courtesy : Zeenews

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