Rupee drops by 19p to one week low against dollar on fiscal deficit concerns

The rupee on Monday declined by 19 paise to close at a one-week low of 75.73 against the US dollar due to fiscal deficit concerns as the government raised its market borrowing programme for 2020-21 in view of COVID-19 pandemic.

Forex traders said while positive domestic equities supported the local unit, market participants were concerned about the impact of increased borrowing on the fiscal deficit.

A foreign brokerage on Monday estimated the fiscal deficit to come at 5.8 per cent of the GDP in 2020-21 as against the budget target of 3.5 per cent as the government increased the borrowing programme by more than 50 per cent to Rs 12 lakh crore from the budget estimate of Rs 7.8 lakh crore.

Analysts at Bank of America also revised down their GDP growth estimate to 0.5 per cent for the current fiscal year.

"The government plans to borrow Rs 12 trillion (USD 159 billion), higher than the budgeted Rs 7.8 trillion for 2020-21. This leads to higher yield and lower bond prices," said Devarsh Vakil, Head Advisory, HDFC Securities.

Market participants were worried about fiscal deficit implications, he added.

According to Jateen Trivedi, Senior Research Analyst (Commodity & Currency) at LKP Securities, the rupee extended losses on Monday on dollar buying by oil importers.

"A lot of buying in USD by oil importers. Bond yields are up and government borrowing has almost being doubled. It is expected the rupee will keep basing between 75-76 for some sessions," he said.

The local unit opened at 75.55, then lost further ground and finally settled at 75.73 against the greenback, down 19 paise over its previous close of 75.54 on Friday.

During the day, the local unit saw an intra-day high of 75.55 and a low of 75.77.

In India, the death toll due to COVID-19 rose to 2,206 and the number of cases climbed to 67,152 in the country, according to the Health Ministry.

Meanwhile, the number of cases around the world linked to the disease has crossed over 41.02 lakh and the death toll has topped 2.8 lakh.

The dollar index, which gauges the greenback's strength against a basket of six currencies, was trading 0.33 per cent up at 100.06.

Brent crude futures fell 1.97 per cent to USD 30.36 per barrel.

Domestic stocks advanced in early trade which supported the rupee. The key indices Sensex and Nifty, however, closed marginally down due to sell-off in financial counters.

Foreign institutional investors were net buyers in the capital market, as they bought equity shares worth Rs 1,724.71 crore on Friday, according to provisional exchange data.

Traders said market participants are also awaiting the next round of stimulus from the government to cushion the economic damage inflicted by the COVID-19 crisis. Moreover, any cues on the removal or extension of lockdown will be keenly awaited, they said.

The Financial Benchmark India Private Ltd (FBIL) set the reference rate for the rupee/dollar at 75.4411 and for rupee/euro at 81.7983. The reference rate for rupee/British pound was fixed at 93.4967 and for rupee/100 Japanese yen at 70.93