NEW DELHI: The Indian rupee slumped against the US dollar on Friday as investors rushed to the safety of safe-haven assets such as the Japanese Yen amid a fresh mutation of the coronavirus disease in Africa and Hong Kong, which cast a shadow on global growth prospects, dealers said.
The partially convertible rupee settled at 74.8700 per US dollar as against 74.5100/$1 at the previous close. The Indian currency, which had opened at 74.5800/$1 on Friday, moved in a band of 74.5700-74.9200 per dollar during the day.
With the latest variant of Covid-19 being said to have a significantly high number of mutations, India has imposed fresh travel restrictions to and fro from South Africa, Botswana and Hong Kong. Coupled with the resurgence of Covid-19 cases in Europe, the fresh variant is seen having a significant impact on global growth, prompting overseas investors to make a beeline for safer assets, leading to outflows from emerging markets such as India, dealers said.
The phenomenon has already started, with equity markets witnessing significant outflows of overseas investment over the past few days. Benchmark equity indices slumped on Friday further exerting pressure on the domestic currency, dealers said.
The Sensex plunged 1,688 to close just above 57,100 on Friday while the Nifty50 plunged over 500 points to close at 17,026.
While the dollar index eased significantly on Friday, easing to 96.29 from a 16-month high of 96.94 on Wednesday, emerging market currencies such as the rupee bore the brunt of the global flight to safe instruments such as US government bonds. The yield on the 10-year US government bond fell 12 basis points on Friday and was last 1.51 per cent.
The dollar index measures the US currency against a basket of six major rival currency pairs.
“There is a massive global risk-off; that is why we almost went to 75/$1 today (Friday),” a dealer with a foreign bank said on condition of anonymity. “There were considerable outflows from FIIs (foreign institutional investors) and per se it seems that the Reserve Bank of India is not yet expending reserves in a major way. Maybe it wants the rupee to correct in line with other EM currencies. For the coming week we could hit 75.40/$1, depending on the news flow from global markets,” he said.
Government bonds gained sharply with the yield on the 10-year benchmark 6.10 per cent 2031 paper shedding four basis points to settle at 6.33 per cent on Friday. Bond prices and yields move inversely.
Bond traders stepped up exposure to dated securities as the fresh risk to global growth posed by the new Covid variant led to speculation that central banks, including the RBI, would prolong monetary accommodation for some time to come, dealers said.
Prior to the outbreak of the fresh waves in Europe and the new mutation, several market participants were of the view that the central bank would embark on rate hikes at its December policy meeting by raising the reverse repo rate.