Indian Rupee dives on FOMC – 2nd biggest fall in history

Market volatility on the back of FOMC has caused thunder in the markets as equities and commodities suffered huge losses.

Market volatility on the back of FOMC has caused thunder in the markets as equities and commodities suffered huge losses.

The Indian rupee suffered its second biggest fall in history as the US dollar continued to be sought by investors as a safe asset and expectations of foreign investor inflows were belied. The local currency dropped by Rs 1.24 against the dollar to close at 49.58 and is now expected to further weaken to below Rs 50 against the dollar.

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Those planning an overseas vacation will have to spend nearly 10% more than what they would have set aside three months back for their dollar purchase. The weak rupee will make all imports, including oil, more expensive and add to inflationary pressures. Exporters, however, stand to gain as they will now get more rupees for their dollars. The fall in rupee value will also encourage overseas workers to send more money home and park them in domestic deposits.

Forex dealers said that the worst might still be ahead with the three-month forward trading at 50.21 in offshore markets as compared to 49 on Wednesday. Although the rupee is not convertible overseas investors hedge their exposure to rupee in the overseas through transaction in non-deliverable forwards – a future market where there is no delivery of rupee currency, but the exchange difference between spot and future rupee is settled in dollars.

 

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