The Indian rupee fell sharply against the U.S. dollar, moving towards its lowest level on record as the global and local spread of the coronavirus continued to widen.
The COVID-19 outbreak beyond China has soured the market mood globally, prompting central banks, including the Reserve Bank of India, to assure investors that they stand ready to take action. Many, including the US Federal Reserve and the Bank of England, have announced emergency interest rate cuts. Still, asset markets from equities to currencies continue to fall as investors throng to safer avenues like bonds and gold.
On opening on Thursday, the rupee fell nearly 1 percent to 74.34 against the U.S. dollar. That’s close to the previous all-time low of 74.48 against the dollar, which the Indian currency hit on Oct. 11, 2018.
The rupee closed 0.7 percent lower at 74.21 against the US dollar.
The weakness in the rupee has been led by outflows by foreign portfolio investors, who sold Rs 33,164 crore in debt and equities in so far March. Apart from global factors, domestic concerns about financial stability have also hurt sentiment.
The RBI has adequate firepower to support the rupee should it feel to step in. As of the latest data, the RBI had forex reserves of $481 billion.
On Thursday evening, the RBI stepped in and announced sell/buy swaps for the US Dollar-Indian Rupee pair. The move is intended to ensure that there is adequate dollar liquidity in the market, the central bank said.
India has so far reported over 70 cases of the virus, as per an update by the Ministry of Health and Family Welfare. The government withdrew existing visas for seven countries and said that travellers from these nations would need to be quarantined for 14 days upon entering the country.
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