Experts says the central bank did not want to topple the apple cart and push up rates in the domestic debt market when the green shoots of an economic revival were visible
The rupee remained under pressure as it dropped 32 paise to another record low of 74.39 per dollar on Tuesday, over the previous close of 74.07.
Asian currencies across the board traded lower with the South Korean won down 0.23%, Thai Baht 0.16%, Indonesian rupiah 0.13%, Singapore dollar 0.13%, Hong Kong dollar 0.06% and Taiwan dollar falling 0.06%.
"We expect rupee weakness to persist, heading to 75 against the dollar even as we see a less probability of any unconventional policy measures amid comfortable forex war chest. We do not fully rule it out if the rupee remains volatile and an emerging market outlier in the fragile forex space," Madhavi Arora, economist, Fx & rates at Edelweiss Securities, said in a note.
Over the weekend China reduced its reserve requirement ratio by 100 basis points, or 1%, to support growth by infusing liquidity. RBI maintained a status quo on the rates it lends to banks for the same reason.
Experts said the central bank did not want to topple the apple cart and push up rates in the domestic debt market when the green shoots of an economic revival were visible. But forex experts said it was a gamble that the central bank took at the cost of the rupee further depreciating.
After exiting the debt market, the FPIs have now started deserting the Indian equities. A fear of fiscal slippage will weigh on all the asset classes in India, especially since there is a strong economic revival in the US and the US treasury yields are above 3%, experts said.
"The dollar slipped against the safe-haven yen in Asia on Tuesday on simmering anxiety about higher US bond yields, the Sino-US trade war and political turmoil in Europe. The yen extended gains against the greenback for a fourth straight session, coming off an 11-month low of 114.55 yen per dollar reached on Thursday last week," IDBI treasury said in a report.
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