Rupee at all-time low: What is pushing it down? HSBC India answers

[dani191]

Rupee at all-time low: What is pushing it down? HSBC India answers
The Indian rupee on Thursday hit its all-time low, breaching 69 per dollar for the first time ever.
The currency opened at 68.89 against the US dollar, slipping 28 paise from the previous close of 68.61.



combination of many factors is pushing the rupee down, said Manish Wadhawan, managing director and head of fixed income, HSBC India, adding that the direction for rupee is negative at the moment and the currency may see further pressure.

Wadhawan said that the factors pushing rupee include FII outflow and crude prices.

“The Asian currencies have been depreciating against dollar and the dollar strength is also playing a role. So, it is a combination of a lot of factors ... rupee may remain under pressure for some more time and it is very difficult for me to point out the number where it can stop or how will it stop," he said.

The Indian rupee on Thursday hit its all-time low, breaching 69 per dollar for the first time ever. The currency opened at 68.89 against the US dollar, slipping 28 paise from the previous close of 68.61.

Read our column here: The rupee story – quo vadis?

The currency hit an all-time closing low of 68.82 on 28 August 2013 while the all-time intraday low stands at 68.8625 seen on 24 November 2016.

On Wednesday, the currency weakened to 68.61 to the dollar, its weakest since November 30, 2016, as high oil prices stoked importers to step-up purchase of the greenback.

The rupee has shed 7.7 percent so far this year at its record low, making it the worst performing currency in Asia, followed closely by the Philippine peso.
https://www.cnbctv18.com/market/cur...pushing-it-down-hsbc-india-answers-211361.htm

 

[Chakar The Great]

Currency weakened past 69 rupees to the dollar, making it one of the worst performers in Asia for the first time.


The Indian rupee on Thursday weakened past 69 to the dollar for the first time, slumping to an all-time low amid a spike in crude oil prices, foreign capital outflows and a widening current account deficit.

Last week rating agency Standard & Poor's cut the country's credit rating outlook to "negative".

The Indian currency, which slid 0.7 percent to as much as 69.0925 per dollar in early trade, is one of the worst performers this year among Asiancurrencies, falling by nearly seven percent so far.

The Indian currency had touched its previous record low of 68.8650 per dollar on November 24, 2016.

Asia's third-largest economy is battling inflation and a widening current account deficit stoked by high oil prices. This, in turn, is adding to selling pressure on the Indian currency.

Current account deficit is a measurement of a country's trade where the value of its imports exceeds the value of its exports.

India's January-March current deficit widened to $13bn from $2.6bn a year earlier.

India imports more than two-thirds of its fuel needs and higher crude prices pose significant risks for the Indian economy.

Last month, the Organization of Petroleum Exporting Countries' (OPEC) agreement to restrict their oil output by 1.8 million barrels of oil per day (bpd) saw crude oil prices rising to $80 a barrel for the first time since 2014.

This year has also seen a sustained outflow of foreign funds from Indian debt and equity markets.

In 2018, total outflows until now from bonds and shares stood at $6.6bn, according to a Reuters news agency report.

Sanctions and tariffs
Since January, foreign investors have reduced holdings of rupee-denominated government and corporate bonds by $6.1bn, and pulled $785m from equities.

Foreign institutional investors (FIIs) taking money out of India is a big problem, economist Mohan Guruswamy told Al Jazeera.

Several reasons are contributing to the rupee slide - fear of the US sanctions and tariff wars, the increasing trade gap, and FIIs pulling out owing to demand for dollars," Guruswamy said.

Concerns have been mounting over the US threats to sanction countries, including India, that do not stop importing oil from Iran by November 4.

India must decrease dependence on Iranian oil imports, US envoy to the United Nations Nikki Haley said in New Delhi on Wednesday after meeting Indian Prime Minister Narendra Modi.

The international oil benchmark Brent surged to $77.33 a barrel on Thursday.

Modi is struggling to jump-start economic growth and jobs in advance of seeking a second term in a general election due by May 2019.

His campaign promises of development and "better days" to come have failed to deliver new jobs. Modi had vowed to create jobs for 10 million youths each year but he has fallen short on his promise.

India's jobless rate stood at 5.29 percent in May, data compiled by Centre for Monitoring Indian Economy showed.

"Economic growth is undoubtedly slowing, investment is on a slide, commercial credit is declining," said Guruswamy, a former economic adviser to the federal government in the late 1990s.

"The Reserve Bank of India [the country's central bank] will have to intervene for macroeconomic reasons and for political reasons as the opposition is bound to attack the government over the rupee's record low," he added.

Zeenat Saberin reported from New Delhi.

 

[El Sidd]

#FakeNews

 

[Nilgiri]

Last week rating agency Standard & Poor's cut the country's credit rating outlook to "negative".

Uh... no it didnt.

 

[Chakar The Great]

Uh... no it didnt.

Alright, but i am sure you know thats not the main agenda of the article. Any ways I have copied the article published on Al Jazeera, with link below,

https://www.aljazeera.com/news/2018...flation-credit-downgrade-180628092815613.html

@Nilgiri would you elaborate the economic condition in India right now? Is it worrisome?

 

[PurpleStone]

#FakeNews

#Wrong

Alright, but i am sure you know thats not the main agenda of the article. Any ways I have copied the article published on Al Jazeera, with link below,

https://www.aljazeera.com/news/2018...flation-credit-downgrade-180628092815613.html

@Nilgiri would you elaborate the economic condition in India right now? Is it worrisome?

Indian economy is doomed.

 

[Nilgiri]

@Nilgiri would you elaborate the economic condition in India right now? Is it worrisome?

It's fine, I would only be worried if rupee slides past 75.

The fundamentals are looking better than the last administration:

https://defence.pk/pdf/threads/chin...rms-key-market-dynamics.565121/#post-10590645

It boils down to better fiscal management of the govt, better transfer of wealth and credit to poorer base of the country (direct transfer benefit + bank accounts instead of product price macro-intervention) and increasing investment trends.

 

[Shamsher1990]

It's fine, I would only be worried if rupee slides past 75.

The fundamentals are looking better than the last administration:

https://defence.pk/pdf/threads/chin...rms-key-market-dynamics.565121/#post-10590645

It boils down to better fiscal management of the govt, better transfer of wealth and credit to poorer base of the country (direct transfer benefit + bank accounts instead of product price macro-intervention) and increasing investment trends.

I don't know. I have expected Modi to invest in strategic projects to move away from imported petroleum or atleast hedge against them. I would have been very happy if he had invested in importing or developing indigenously coal liquefaction technology. At USD 60 or 50 dollars a barrel coal liquification might not make sense but at 100-120 USD a barrel, it is remarkably inexpensive. IOCL should have developed and moth-balled enough capacity for coal liquefaction that come an upward tide in petroleum prices, we could fight against rising BoP. Right now that is not even an option. This is how South Africa tamed its CAD in 50s-60s. Now with better catalysts and nano-catalysts, this should have been even more profitable.

 

[PurpleStone]

I don't know. I have expected Modi to invest in strategic projects to move away from imported petroleum or atleast hedge against them. I would have been very happy if he had invested in importing or developing indigenously coal liquefaction technology. At USD 60 or 50 dollars a barrel coal liquification might not make sense but at 100-120 USD a barrel, it is remarkably inexpensive. IOCL should have developed and moth-balled enough capacity for coal liquefaction that come an upward tide in petroleum prices, we could fight against rising BoP. Right now that is not even an option. This is how South Africa tamed its CAD in 50s-60s. Now with better catalysts and nano-catalysts, this should have been even more profitable.

Politicians serve their masters not people. Any benefits people may get is collateral only.

 

[Shamsher1990]

Politicians serve their masters not people. Any benefits people may get is collateral only.

There are no masters per say, there are interests. A savvy politicians can actually make massive money while serving people too.
Cheap oil for the country is in interests of all businesses in India.

 

[PurpleStone]

There are no masters per say, there are interests. A savvy politicians can actually make massive money while serving people too.
Cheap oil for the country is in interests of all businesses in India.

But not in the interest of the people who sell oil.

You are assuming that politicians serve the interests of people in India only.

 

[Shamsher1990]

But not in the interest of the people who sell oil.

You are assuming that politicians serve the interests of people in India only.

Actually nope!
Higher fuel prices are not ALWAYS in interest of the people who sell oil. Petroleum coming from outside is a RISK to those who sell oil. Because it is hard for them to predict the international prices. Higher prices suppress demand as well.

Locally sourced oil is better for them. Top it with lots of regulations as to who can produce and sell oil and it is the best money maker you have.

To be honest, for them what would have been best was that Indian government spends money to acquire or develop technology and capital to develop coal liquification infra-structure and they just retail the products with a wide margin. Even better, they get the contracts for vast infra development for coal liquefaction. Like for Reliance Chemical would have had a field day.

Things are not always win-loss or loss-win. There are lots of win-wins too. Magnitude of wins may vary. If a corporate makes 10 billion dollars but common man save 10,000 per month, giving a kick back of 100 million to PM modi would not have been a problem. Everyone wins.

Don't believe me? Look at the Solar plants that India developed. It made quite a lot of money for Adanan group but at the same time it also was favourable for people of the region because it gave them cleaner electricity at the similar prices as coal. Meanwhile, Adana group lined the pockets of few politicans as well. A wise man will find such opportunities.

 

[Nilgiri]

I don't know. I have expected Modi to invest in strategic projects to move away from imported petroleum or atleast hedge against them. I would have been very happy if he had invested in importing or developing indigenously coal liquefaction technology. At USD 60 or 50 dollars a barrel coal liquification might not make sense but at 100-120 USD a barrel, it is remarkably inexpensive. IOCL should have developed and moth-balled enough capacity for coal liquefaction that come an upward tide in petroleum prices, we could fight against rising BoP. Right now that is not even an option. This is how South Africa tamed its CAD in 50s-60s. Now with better catalysts and nano-catalysts, this should have been even more profitable.

The focus has been on first rectifying the social programs regarding energy use...i.e gas/LPG connection for below poverty households (so they do not need to rely on firewood, coal, cow dung etc)....so their lives are improved with with better direct targetting of this subsidy.....without a ridiculous fiscal splurge (using the old way of simply paying money to energy companies to keep price low, which benefits the largest, richest users of said energy phenomenally more).

This (along with other direct benefits programs with better banking access) has helped India for instance to continue to reduce the number of extremely poor people at a decent clip:

https://www.moneycontrol.com/news/i...-3-to-remain-poor-by-2020-report-2639461.html

(Remember not too long ago in 2012, India had somewhere like 265 million people in extreme poverty, the recent figures suggest around 71 million: https://worldpoverty.io/

....thats nearly 200 million people lifted out of poverty in about 6 years time).

@rott @Cybernetics @bluesky @anant_s @Vergennes

The macro-investment strategy in energy development really need to be tackled next, you are right. But I feel the priority of this govt was important in this term (getting fiscal balance improved while still improving the delivery to those in absolute poverty so they have even some chance to better themselves in free market).

So far macro wise, the policy largely in the electrification realm has also been ok and pragmatic....making use of the really low solar fab prices to push solar at the rural level etc...and using better lighting technology (CFL and LED) supply to the market.

Coal liquefication tech is one thing sure, but it has to be compared with simply doing clean coal investments in coal power plants and investments into electric transmission (to take the role of energy transport logistics). Broadening of other energy technologies needs the free market capex buffers to be broadened again without the asset inflation (of lack of reform, terrible lending procedures to big corporate/cronies and NPA bust cycle it created etc) that was seen in UPA-I and especially UPA-II. The structural trends in India regarding this are improving if you look at the total market cap now, FDI, GFCF, bond market, credit growth improvement and PFCE trends etc etc. Some of it is summarised (take with pinch of salt though) here:

 

[Shamsher1990]

Coal liquefication tech is one thing sure, but it has to be compared with simply doing clean coal investments in coal power plants and investments into electric transmission (to take the role of energy transport logistics). Broadening of other energy technologies needs the free market capex buffers to be broadened again without the asset inflation (of lack of reform etc) that was seen in UPA-I and especially UPA-II. The structural trends in India regarding this are improving if you look at the total market cap now, FDI, GFCF, bond market, credit growth improvement and PFCE trends etc etc. Some of it is summarised (take with pinch of salt though) here:

The issue is, to change India's strategic outlook on energy front, you will need to re-wire almost everything in the country. Meaning? Complete electrification of all tracks to enable switching from diesel to electric. Charging spots for enabling electric vehicles and vehicles in the first place. This is not going to happen in 40 year horizon. So you need to find a way to funnel energy which you can produce locally into this infra via the means they use.

That means is essentially diesel fuel. Diesel is the commercial as well as personal fuel of most of the India. So you need to somehow produce fuel domestically. Only known way is liquefaction. And hence it is strategic in nature for a 40-50 years horizon. After that you may move most of the country on electricity for all needs.

BTW, this does not take away from the optimization which has been done. Like moving cooking from kerosene to LPG etc.

 

[Nilgiri]

The issue is, to change India's strategic outlook on energy front, you will need to re-wire almost everything in the country. Meaning? Complete electrification of all tracks to enable switching from diesel to electric. Charging spots for enabling electric vehicles and vehicles in the first place. This is not going to happen in 40 year horizon. So you need to find a way to funnel energy which you can produce locally into this infra via the means they use.

That means is essentially diesel fuel. Diesel is the commercial as well as personal fuel of most of the India. So you need to somehow produce fuel domestically. Only known way is liquefaction. And hence it is strategic in nature for a 40-50 years horizon. After that you may move most of the country on electricity for all needs.

BTW, this does not take away from the optimization which has been done. Like moving cooking from kerosene to LPG etc.

Yup you are spot on about the scale of the logistics commitment to diesel.