The Indian currency ‘rupee’ extended losses and reached an all-time low level of 77.46 against the US dollar. This is likely to give relief to textile exporters who are currently feeling pressure on their margin due to costlier cotton. However, it is also a cause of worry for the industry as it will raise cost of production due to costlier imports.
In the last two trading sessions, rupee has fallen more than 100 paise against the US dollar. Recently, rupee was week at the opening of trading in Forex market and Indian currency touched all-time low level of 77.46 after decline of 56 paise. Earlier, the rupee had declined 55 paise to touch a level of 76.90 against dollar.
Experts said that the increase in interest rate by the US’ Federal Reserve is the main reason for the stronger US dollar. The Federal Reserve recently raised its rate to contain high inflation by squeezing liquidity. The higher Fed rate is driving the bond yield upside.
“The imports of raw material will become costlier due to depreciation in rupee against dollar. It will increase the cost of production in the textile sector. However, exporters may get temporary relief from the all-time low rupee,” Southern India Mills’ Association (SIMA) Secretary General Dr. K Selvaraju told.
The Indian rupee has seen steep downfall against the US dollar at a time when the industry is trying to import cotton after the government removed duty till September 30. However, rupee will be expensive due to its depreciation. Global cotton prices are hovering near to domestic prices, so cotton import may become unviable due to weaker rupee.
According to Forex traders, risk appetite has weakened amid mounting concerns about inflation that may trigger more aggressive rate hikes by the global central banks. Viresh Hiremath, Forex Analyst and Director of Finlit Consulting Pvt Ltd said, “Global trend of higher inflation is disrupting Forex market, and the South Asian currencies are falling vis-à-vis the US dollar.” He said that the dollar index against six major currencies rose to 104.02 due to uncertainty in global economy and rising inflation in the US. The Federal Reserve can increase interest rate further to contain inflation which pushed up 10 years bond yield.
As foreign investors got attracted to US bonds, they turned net sellers in the Indian market and outflow increased. The Indian rupee came into pressure due to this exit of foreign investors.
However, the Indian rupee has performed better against the US dollar as compared to the currencies of other South and Southeast Asian countries like Bangladesh, Pakistan, Sri Lanka, Indonesia and Malaysia. Forex market experts said that Indian rupee remained almost steady in the last one-and-a-half months. But international economic concerns and inflation in the US may continue to pressurize rupee against the dollar.
