Mumbai (Maharashtra): The Indian rupee slumped below 78 against the US dollar on Monday dragged by foreign fund outflows amid selloffs in the stock markets.
The rupee breached the 78 mark against the US dollar for the first time. At the interbank foreign exchange market, the partially convertible rupee started the day at 78.14 per dollar against its previous close at 77.84.
The rupee hit a low of 78.23 against the US dollar in the morning trade.
Incessant dollar outflows from the Indian equities and bond markets have led to a sharp drop in the value of the Indian currency.
The Indian stock markets’ key indices, Sensex and Nifty, slumped by more than 2.5 per cent on Monday.
The 30 stock S&P BSE Sensex was trading 1404.39 points or 2.59 per cent down at 52,899.05 points at 12.29 pm.
This is the second consecutive session of a sharp drop in the benchmark index. The Sensex had lost 1016.84 points or 1.84 per cent on Friday. In the last two sessions, Sensex has lost around 2400 points.
There have been incessant outflows of foreign funds from the Indian markets. Since the beginning of the year, the foreign institutional investors (FII) have pulled out around $24 billion from the Indian markets.
The recent upsurge in crude oil prices have put pressure on the Indian currency. Brent crude oil price has hovering near $120 per barrel. High oil price is expected widen trade deficit. It will also put pressure on the country’s current account deficit.
Recent surge in crude oil prices and inflationary pressure have led to the decline in the value of rupee.
Inflation has emerged as a major headache for the policymakers in India. High crude oil prices raise concern of a sustained rise in imported inflation.
The Reserve Bank of India (RBI) last week raised inflation forecast for the current financial year to 6.7 per cent from its earlier projection of 5.7 per cent.
As per the RBI’s new projection announced after the Monetary Policy Committee (MPC) meeting, inflation is likely to remain above the central bank’s upper tolerance limit of 6 per cent for the first three quarter of 2022-23.
Inflation is projected to remain 7.5 per cent in the first quarter of the current financial year. In the second quarter, it is projected at 7.4 per cent. For the third quarter, it is projected at 6.2 per cent.
“It may be noted that around 75 per cent of the increase in inflation projections can be attributed to the food group. Further, the baseline inflation projection of 6.7 per cent for 2022-23 does not take into account the impact of monetary policy actions taken today,” RBI Governor said in the monetary policy statement last week.