The Indian rupee on Tuesday nose dived to a new 6-month low of 65.10 against the US dollar in afternoon session of trade over concerns on the macro-economic front.
The Indian rupee on Tuesday nose dived to a new 6-month low of 65.10 against the US dollar in afternoon session of trade over concerns on the macro-economic front.
Apart from the dollar worries, fears over fund outflows from domestic capital market led to weakened forex market sentiment against the backdrop of imminent Fed rate hike and unwinding of its stimulus measures amid unsupportive global factors.
Let us explain in detail the five reasons behind the steep fall of Indian rupee:
US Federal Reserve’s rate hike:
The US Federal Reserve announced that it could hike rates in December. The unexpected announcement brightened the dollar outlook putting other dollar doniminated commodities under pressure. Higher interest rates tend to boost the greenback and push bond yields up.
Low GDP numbers:
The latest GDP data were the lowest in three years. It was 5.7% in the June that dethroned India from the spot of fastest-growing economy.
Besides falling GDP growth rate, exports are under tremendous pressure. The worries are constantly mounting as industrial expansion also hit the lowest in five years.
The buzz of Stimulus Package:
Investors are worried about the impact of the government's decision of widening the fiscal deficit in order to boost the economy. The government reportedly is mulling over a plan to change its fiscal deficit target, in order to spend up to Rs 50,000 crore ($7.7 billion) to save the economy form a slowdown.
Foreign Portfolio Investors bid goodbye:
Foreign portfolio investment (FPI) is the entry of funds into a country where foreigners deposit money in a country's bank or make purchases in the country's stock and bond markets.
One of the reasons behind the fall behind rupee is that since Friday, FPIs sold shares worth Rs 2,491.18 crore since Friday last week, and is still continuing to exit markets over rising global concerns.
Indian market trading in red
The key equity indices Sensex and Nifty on Tuesday repeated the red colour in trade sessions. As North Korea is spooking the markets worldwide, the above mentioned exit of FPIs have not really given Indian shares the time needed to reconcile.
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