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Rupee crumbles to fresh 2-week low on fiscal deficit woes

The home currency settled the week with a sharp 51 paise, or 0.80% low at 64.06, as widening fiscal deficit and the LTCG tax triggered panic dollar buying by corporates and importers.

business Updated: Feb 03, 2018 17:25 IST
Press Trust of India
Press Trust of India
Press Trust of India
rupee,indian rupee,inr
Forex market sentiment turned highly volatile and reacted vehemently to some key Budget announcements triggering panic dollar buying by corporates and importers.(Mint Photo)

The Indian rupee suffered an intense plunge and closed at a near two-week low of 64.06 against the US dollar after the government announced long-term capital gains (LTCG) tax on equities and widened its fiscal deficit target while unveiling the Union Budget.

Forex market sentiment turned highly volatile and reacted vehemently to some key Budget announcements triggering panic dollar buying by corporates and importers.

The home currency settled the week with a sharp 51 paise, or 0.80%.

Unveiling the Budget 2018-19, Finance Minister Arun Jaitley projected a higher fiscal deficit of 3.5% of the GDP for 2017-18, as against the target of 3.2%.

Besides, the Centre introduced long-term capital gains tax of 10% on stock market gains exceeding Rs 1 lakh and the net borrowing for the current fiscal was also steeply raised to Rs 4.79 lakh crore as against the Budget estimate of Rs 3.5 lakh crore.

It was a double-whammy for the Indian currency following the FOMC announcement hit hard by hawkish Federal Reserve policy and a sudden rise in global crude prices, adding to worries about rates rising too quickly.

The FOMC held interest rates unchanged in line with market expectations but the accompanying statement was a bit more hawkish on the economy and inflation warranting further rate hikes in 2018.

The volatile situation was further aggravated by heavy losses in the domestic equity markets which witnesssed carnage following post-Budget sell-offs amid global crash.

Both the benchmark indices pulled back nearly 3% in the bloodbath.

The rupee started the week on a subdued note at 63.60 against last Thursday’s close of 63.55 at the Interbank Foreign Exchange (forex) market due to month-end dollar demand amid firm greenback overseas.

It traded in a tight range early part of the week before taking a knock reacting to post announcements of budgetary proposals.

The home currency plunged to a fresh one-month low of 64.20 on Thursday before ending at 64.06, showing a loss of 51 paise, or 0.80%.

Though, the rupee touched a high of 63.48 briefly.

The RBI, meanwhile fixed the reference rate for the dollar at 64.0781 and for the euro at 80.0335.

In the meantime, country’s foreign exchange reserves rose sharply by USD 3 billion to touch a new life-time high of USD 417.789 billion in the week to January 26, the RBI said.

Foreign funds and overseas investors continued their portfolio buying spree and infused USD 248.05 million during the week.

First Published: Feb 03, 2018 17:19 IST