With the likelihood of a policy rate cut being high in the next monetary policy, the demand for dollars has gone up in the local market, pressuring the rupee and causing it to fall to Rs. 158 against the greenback.
According to money dealers in the market, the rupee has fallen to its lowest in seven months on strong dollar demand from importers and foreign debt investors and an overall weakness in the currency.
Rupee fell 98 paisas to end at Rs. 158.42 against the dollar from the previous day’s closing of Rs. 157.44 in interbank foreign exchange market. The exchange rate in open market also witnessed a decline in the local unit by Rs 1. The cash-ready market ended at Rs. 158.00 to the dollar from last day’s closing of Rs. 157.00.
The local unit was seen at the current level in early August 2019. The domestic currency lost value of around 2.7 percent against the greenback during the last three trading sessions.
Dealers said the rupee continued to fall for the third consecutive day on the back of the outflow of funds from local debt markets in anticipation of a policy rate cut next week.
The monetary policy for the next two months is due on March 17 and we could see a rate cut of 50 to 100 basis points. The decrease in policy rate will have a direct impact on the interest rates and profit rates on debt securities.
On the other hand, bank borrowing may get impetus from the local industries and businesses as a result.