NEW DELHI: The rupee weakened as much as 0.2 per cent against the US dollar early on Friday as the discovery of a fresh mutation of the coronavirus disease in South Africa rekindled concerns about a fresh global wave of the pandemic, prompting investors to make a beeline for safe-haven assets such as the Japanese Yen, dealers said.
The partially convertible rupee opened at 74.5800 per US dollar as against 74.5100 at the previous close. So far in the day, the Indian currency moved in a band of 74.5700-74.6750 per dollar.
The new variant, which has been detected in South Africa, Botswana and Hong Kong, is said to have a significantly high number of mutations and poses a substantial health risk, the government said, adding that travel restrictions had been placed on these countries.
Coupled with a resurgence of COVID-19 cases in Europe, the new variant of the disease poses a risk to global economic growth and is likely to lead to a flight of capital from riskier emerging market currencies such as the Indian rupee, dealers said.
The rupee has already taken a beating against the US dollar so far in the week, shedding 0.6 per cent since November 18, as signs of a faster pace of normalisation in the world’s largest economy have propelled the greenback to near-16-month highs.
The dollar index, which measures the greenback against six major rival currencies, climbed to 96.94 on Wednesday – the highest level since July 2020. The index, which was at 96.06 at the end of the previous week, was last at 96.70.
With fresh concerns emerging about another wave of the deadly disease, dealers feel that the recent bout of selling by foreign institutional investors from Indian equities could be exacerbated.
Benchmark equity indices took a hit on Friday, with the BSE flagship Sensex down 834 points or 1.42 per cent to 57,960 and the NSE benchmark Nifty dropped 258 points or 1.4705 per cent to 17,278.
“Barring a fall in crude oil prices, the news flow is all negative for the rupee,” a dealer with a state-owned bank said on condition of anonymity.
“The new variant has been flagged as a cause of major concern and if you add Europe to that it is fairly clear that we are going back to a scenario of restrictions on movement. That will impact growth and India will not be insulated. Exporters could sell dollars at 74.65/$1 level but we are now expecting the rupee to depreciate to 75/$1 in coming days,” he said.
Government bonds gained sharply, with the yield on the 10-year benchmark 6.10 per cent 2031 paper dropping four basis points to 6.33 per cent as the renewed concerns on global growth led to speculation of the Reserve Bank of India prolonging monetary policy accommodation to shield the domestic economy, dealers said.
Bond prices and yields move inversely.