During early trade on Thursday, Indian currency fell to 69.09 during while it had closed yesterday on 68.63. The previous time it had an intraday low was 68.86 against the dollar on Nov 24, 2016.
The reason for its fall include stronger dollar, to higher oil prices, a wider current account deficit and foreign portfolio outflows. The Indian currency has been the worst performer in Asia, weakening 8.1 percent.
For India, it is expected that the current account deficit will widen to 2.5 percent of GDP in FY19. This could put pressure on balance of payments as there is wider current account deficit along with capital outflows.
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Urjit Patel, in an editorial in the Financial Times stated that there was a threat of dollar funding drying up for emerging market economies. According to him, ‘higher borrowings from the U.S. government against the backdrop of reduced liquidity due to the unwinding of the U.S. Federal Reserve’s balance sheet will mean that emerging markets could face a dollar double whammy’.
Fitch Ratings Global Economic Outlook has said, “India has better macroeconomic fundamentals than in 2013 and very low foreign ownership rates in the domestic government bond market, but the current account deficit has been widening as a result of rising oil prices, reviving domestic demand and poor manufacturing export performance.”
