Rupee sinks to fresh 17-month low amid market meltdown, continued forex outflows

The rupee sank by 60 paise to close at a fresh 17-month low of 74.28 against the US currency on Thursday due to heavy dollar demand as investors rushed to prune riskier bets amid coronavirus pandemic fanning recession fears.

Indian equity markets suffering their worst single-day losses and stock indices slipping into bear territory also hit the rupee sentiment.

Foreign investors remained net sellers in Indian capital markets for a fourth straight day, pulling out more than Rs 11,000 crore (USD 1.548 billion) on Thursday amid a global sell-off in equities, market data showed.

FPIs have withdrawn a whopping Rs 33,163 crore (USD 4.46 billion) from Indian capital markets in the current month so far as coronavirus outbreak threatened to derail the global economy.

Amid the heavy rush for the US dollar in forex markets, the Reserve Bank announced liquidity measures such as buy-sell swap of USD 2 billion to increase dollar availability with banks and ease pressure on the rupee.

"On a review of current financial market conditions and taking into consideration the requirement of US Dollars in the market, it has been decided to undertake 6-month US Dollar sell/buy swaps to provide liquidity to the foreign exchange market," the RBI said in a statement.

In the first tranche, the RBI will sell American dollars worth USD 2 billion on Monday.

The announcement provided some support to the Indian rupee which had declined to day's lows of 74.50 after the World Health Organization declared the new coronavirus (COVID-19) a pandemic.

The rupee cut short some of the losses to close at 74.28 to the US dollar, showing a fall of 60 paise over the last close.

Following the WHO announcement, US President Donald Trump suspended all travel from Europe, excluding the UK, to the US for the next 30 days to stop the spread of the virus.

The US reaction ramped up fears of worldwide recession, drowning the dollar and crude oil.

Brent crude futures, the global oil benchmark, fell 5.53 per cent to USD 33.81 per barrel.

Indian basket of crude oil also dropped sharply by nearly 28 per cent to USD 34 per barrel, easing forex outflow concerns due to a weak rupee.

Jateen Trivedi, Senior Research Analyst (Commodity & Currency) at LKP Securities commented: "Rupee traded weak with a gap down opening in the rupee on back of Coronavirus jitters hitting the Indian country & moreover on statement of WHO stating it as a Global Pandemic.

"Going forward strength of the Government to fight the virus will be crucial as FII's have pulled out huge money from the Indian markets as it's evident the Equity market which faltered close to 9%. Rupee can see weakness towards 75 if the virus affects keeps its grip."

After nosediving over 3,204.30 points on across-the-board selling, the 30-share BSE Sensex closed 2,919.26 points or 8.18 per cent lower at 32,778.14.

Likewise, the broader NSE Nifty gave up the 9,600 level, slumping 868.25 points or 8.30 per cent to close at 9,590.15.

This was the biggest drop for the benchmarks in absolute terms, eclipsing their previous record one-day fall on Monday (March 9).

The most-traded 10-year government bond yield stayed low at 6.2365.