Mumbai: The rupee plunged to a record low against the US dollar on Monday amidst severe weakness in emerging market currencies as deepening crisis in Turkey triggered a massive risk aversion towards emerging market risk assets.
The rupee slumped 1.6 per cent, its biggest single day fall since September 2013, to close the day at 69.93 a dollar, just 7 paise away from 70 a dollar mark from its previous sessions close of 68.84. The rupee has fallen 8.67 per cent in 2018 till date.
The Lira tanked over 8 per cent on Monday after the US increased tariffs on steel and aluminium imports from Turkey to 20 per cent and 50 per cent respectively.
“The tough rhetoric from Turkish President Tayyip Erdogan over the weekend, expressing willingness to stand up against US threats and finding new markets and allies is making markets nervous. The possibility of contagion on account of exposure to Turkish assets has caused widespread pessimism and dampened risk sentiment globally, especially in Europe,” said Abhishek Goenka, CEO, India Forex & Advisors. European banks have exposure worth $140 billion to Turkish assets.
With the rupee resuming its fall after a brief period of consolidation, forex participants are not ruling out of the possibility of the rupee weakening further to breach the 70 level mark. “The global policy environment remains challenging as the US Federal Reserve normalises policy, firming up the dollar and rates. Concurrently, protectionist trade overtures have become a source of concern, with the latest currency crisis in Turkey reviving contagion worries. In this midst, Asian central banks are likely to remain on the defensive to limit any spillover impact,” Radhika Rao, economist, DBS Bank....