Rupee continues to slide as economic growth slackens

The finance minister’s announcement to merge six banks into four big banks on August 30 has failed to lift the markets. Sensex fell over 770 points and rupee lost 97 paise against dollar to trade at 72.34 following concerns over economic war between the US and China, and a weak GDP growth in India of 5% in the first quarter.

US announced new tariffs on China and concerns over escalation of tariff war between the two global economic giants in the world grew. The Chinese Yuan witnessed a decline of 0.6%, Indian rupee witnessed a 1.2% drop. The market is also disappointed with the current Indian economic situation, GDP growth which is just 5% at six years low.

Rupee has been declining for quite some time. Since July 31, rupee has dropped from 68.86 against dollar to 72.3, which is about 5% drop in a month. In the same period Chinese Yuan has lost 4.3% which is a 11-year low.

Since the US Federation Reserve announced its first rate cute in a decade on July 31, the Indian rupee has been under pressure. This move surprised many emerging markets as they expected that such a stance would have resulted in inflow of funds to their country.

FPI is exiting the Indian markets and have sold equities in India of ₹30,000 crores. In the same time FPI has invested a net of ₹21,000 crores in the debt market.

The government decided to control the damage and control the situation by announcing to roll back the surcharge on FPI. Although this move did not work as planned. FPI pulled out ₹5,500 crore from Indian equities since the rollback move on August 23, 2019. This is also a major reason which is putting pressure on the rupee.