The Indian rupee slumped 73 paise to over 1-month low of 66.49 per dollar on Monday amid a sharp selloff in domestic stock markets. This was the lowest level of the rupee since September 16 when it had hit 66.51.
The Sensex fell as much as 608 points at day’s low on concerns that the BJP’s massive defeat in Bihar could stall economic reforms.
Analysts say Monday’s fall is a knee-jerk reaction and it’s unlikely that economic reforms would be impacted in the medium to long term. The bigger worry for markets is the increasing likelihood of an interest rate hike in the US next month, analysts said.
The US Fed has kept interest rates near zero for almost seven years, and the central bank last month said it would consider a rate increase at its December 15-16 meeting, the last of the year.
Sanjiv Bhasin, executive vice president (markets and corporate affairs) at IIFL said money will chase assets in the US and in other developed countries such as Germany and Japan.
“India is unlikely to be a favourite anytime soon among the emerging market countries… A rate hike in the US will make it difficult for the Reserve Bank to defend 68/dollar,” he added.
Last week, the rupee shed 0.26 per cent to close at 65.75 per dollar amid selling by foreign institutional investors. For the week, FIIs were net sellers to the tune of Rs 1,085 crore, while domestic investors bought shares worth Rs 968 crore.
The rupee however pared some early losses and ended at 66.44/dollar. The Sensex staged a big recovery in late trade to end 143 points lower, after slumping over 600 points at day’s low.