The Indian rupee dropped to a historic record low in opening deals on Thursday with investor sentiment affected by a widening trade deficit on the domestic front and the broad rise in the US dollar versus other Asian peers.
The partially convertible rupee was trading at 70.25/26 per dollar, at 0343 GMT, versus its Tuesday’s close of 69.90/91. Markets were closed on Wednesday for Independence Day.
The rupee hit a record low of 70.32 earlier in the session.
India’s trade deficit widened to a more-than-five-year high of $18.02 billion in July, the trade ministry said on Tuesday, driven largely by a surge in oil imports.
Given that India is the world’s third largest oil importer, any hike in global oil prices will inflate the import bill and disrupt the fiscal position. India’s current account deficit (CAD) has already widened 42 per cent year-on-year to $160 billion in FY18, and a high deficit means the country has to sell rupees and buy dollars to pay its bills. This further reduces the value of the rupee.
The sustained foreign capital outflows have also played a big role. Foreign portfolio investors have pulled out more than Rs 46,600 crore from the capital markets (equity and debt) in the year so far. It does not help that the general elections are coming up next year – a time when most foreign investors go into fence-sitting mode.