The news report on Friday says Indian rupee dived to a six-and-a-half-month low and government is planning Rs 40,000 crore fiscal stimulus to the economy to boost exports, support MSMEs, and expand bank credit, even at the cost of letting the fiscal deficit widen a little. Today, the rupee dropped by 34 paise to a six-and-a-half-month low level of 65.15 against the US dollar on frenetic dollar demand from importers and banks. The previous losses in domestic equity markets and unabated foreign fund outflows weighed on the rupee.
The rupee sank as much as 0.9% Yesterday, the most since 18 May, to 64.84 per dollar, before closing down 0.8% at 64.7950, and 10-year bonds declined to a four-month low after the US Federal Reserve left the door open for a rate hike in December. After Arun Jaitley said the government may soon announce measures to revive economic growth, rupee’s weakness was also on concerns of a widening fiscal deficit. As US Treasury yields spiked after the Fed left interest rates unchanged Global markets were mixed on Wednesday but signaled it still expects one rate hike by the end of the year despite recent weak US inflation readings.
It reduced its estimated long-term “neutral” interest rate from 3% to 2.75%, reflecting concerns about overall economic vitality. After the Fed begins unwinding a decade of aggressive stimulus, investors seem to be cautious about prospects for foreign liquidity inflows to India. So far in September, Foreign institutional investors have sold a net Rs 69,095.65 crore of stocks; they have bought Indian equities worth $6.54 billion (around Rs 42,185 crore today) this year.
On Friday, Sensex and Nifty opened lower as most of the Asian stocks fell in the early trade on the possibility of North Korea conducting another hydrogen bomb test, this time in the Pacific Ocean.