Rupee weakens against US dollar as current account deficit widens

Mumbai: The Indian rupee on Thursday weakened for the third session against the US dollar after a central bank report showed India’s current-account deficit widened more than expected in the last quarter.

At 12.05pm, the rupee was trading at 67.70 against the US dollar, down 0.08% from its previous close of 67.64. The currency opened at 67.56 a dollar, and touched a high and a low of 67.55 and 67.70, respectively.

Data released on Wednesday showed that current account deficit (CAD) jumped to $13 billion, or 1.9% of gross domestic product (GDP) in fourth quarter of fiscal year 2018, against $2.6 billion recorded in the same period last year. Bloomberg estimated $12.4 billion deficit in a survey.

“The challenges for the external balance will intensify in FY2019 with headwinds from developed market monetary policy and crude prices. We estimate CAD/GDP to deteriorate to 2.9% in FY2019 with overall balance (on balance of payments basis) at (-)$25.6 billion compared to $43.6 billion in FY2018. We maintain our depreciation bias on the rupee and expect the US dollar-rupee to range within 66.5-69.0 over the next few months,” said Kotak Institutional Equities in a report.

Traders were also worried after the US Federal Reserve raised rates for the second time this year and upgraded their forecast to four total increases in 2018, as unemployment falls and inflation overshoots their target faster than previously projected.

Traders are now cautious ahead of European Central Bank meeting where members are poised to hold the first formal talks on ending its bond-buying program on Thursday. The Bank of Japan meets Friday, with no change to policy expected.

So far this year, the rupee has weakened 5.6%, while foreign investors have sold $204.40 million and $4.90 billion in equity and debt markets, respectively.

Bond yield fell for second sessions as the central government’s decision to skip debt sales this week eased supply pressure. The 10-year bond yield stood at 7.92%, from its Wednesday’s close of 7.93%. Bond yields and prices move in opposite directions.livemint

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