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The rupee’s downward spiral continued as it breached 71 against the dollar for the first time. Moreover, this is the rupee's biggest monthly fall in three years.
Sovereign bonds dropped for the fifth day, as yields spike to 7.95%, which is the highest level since June 14.
This was after it hit a record closing low for a second straight day. Robust month-end demand for the dollar by importers and rising crude oil prices have put immense pressure on the Indian currency. Heavy sell-off in global currencies, including the Lira amid Turkish economic instability also fueled demand for safe haven assets.
The rupee has lost about 7.2% this year, which has strengthened its dubious position of being the worst performing emerging market currencies.
The rupee closed at fresh record low of 70.74 against dollar by falling 15 paise on Thursday.
Incidentally, it had opened the day lower at 70.64 against the Wednesday’s closing of 70.59 against the dollar.
The government reportedly insists that there is a mismatch between the demand and supply, which is playing havoc. Further, they claim that foreign portfolio investors took out $9bn from the country in the first three months, leading to this scenario. Moreover, they are apparently of the opinion that the rupee will remain in the 68-70 range against the dollar.
Besides, the rupee’s dive has prompted import companies to rely on monthly forward contracts instead of fortnightly deals to offset short-term volatility in the rupee.
Meanwhile, benchmark equity indices Sensex and Nifty also ended flat on Thursday amid selling in financial stocks on the back of a depreciating rupee.
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