Here are the reasons behind why Indian rupee plunges below 65 to a dollar

Here are the reasons behind why Indian rupee plunges below 65 to a dollar

New Delhi, September 22: First time in over five and a half months time, Rupee plunged below 65 mark on Friday. Around 10 in the morning, domestic currency was trading 25 paise down at 64.05 to the dollar.

On Thursday, local currency had plummeted by a whopping 54 paise to end at 64.81 to a dollar.

Here are the top factors weighing on rupee, after going by the buzz in the forex market:

Panic dollar buying

The US Federal Reserve’s decision to unwind its bond portfolio has rattled forex market sentiment, triggering panic dollar buying by companies and importers. The Fed turned more hawkish than expected and made a formal announcement on Wednesday after its two-day rate-setting meeting that it would begin normalising its crisis-era stimulus programme from next month and stick with the plans for further rate hikes.

Brokerage ICICIdirect.com said the rupee posted the largest single-session decline on Thursday against the US dollar since May 18, after the US Federal Reserve hinted at raising policy rate once more before this year-end and said it would begin paring its massive bond portfolio from next month.

Speculation about a major Rs 40,000-50,000 crore stimulus package from the government which may force it to relax the fiscal deficit target led to a spike in bond yields which in turn put pressure on the rupee. “Concerns over domestic fiscal deficit spiralling amid expectation of government stimulus weighed strongly on the rupee,” ICICIdirect said.

Slower growth expectation

The OECD has trimmed India’s growth forecast for this financial year to 6.7 per cent from a June estimate of 7.3 per cent, citing transitory impact of GST rollout and demonetisation. In contrast, China’s economy gets a 0.2 per cent lift from its earlier assessment to 6.8 per cent for 2017.

FPI outflows

Foreign portfolio investors have been on a selling spree on India’s equity market since August 1.They sold shares worth Rs 17213 crore between August 1 and September 21, according to data available with NSDL.

(Inputs from agencies)

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