All eyes on the Indian rupee after its 105 paise fall on Wednesday

By Aditya Raghunath – The Indian rupee experienced its biggest drop in 20 months, falling 105 pais on Wednesday against the US dollar. The rupee ended Wednesday at Rs 74.47 per US dollar at interbank exchange, its lowest level since November 13, 2020 and the biggest drop since August 5, 2019.

The rupee fell mainly due to the resurgence of the COVID-19 pandemic which disrupted what was an already fragile economic recovery. Full or partial lockdowns in Maharashtra, India’s richest state, and several other states haven’t helped either.

A second reason for the decline is RBI’s decision to keep interest rates unchanged and to ensure sufficient liquidity in the system. Experts say the forex market did not expect such an accommodating stance from the central bank. The second rising wave of the COVID-19 virus will impact demand and hurt the rupee.

In addition, three states: Maharashtra, Orissa and Andhra Pradesh have said they are running low on vaccines and oxygen.

At first glance, it is likely that the rupee will continue to trade at these levels at least in the short to medium term. Bloomberg data indicates that the rupee is now Asia’s worst performance in April.