Mumbai: The Indian rupee on Wednesday opened at a two-month low against the US dollar due to weak domestic macro economic data and tracking Asian currencies which fell on fresh doubts over the US-China trade deal.
At 9.10 am, the domestic currency was trading at 71.72 a dollar, down 0.37% from Monday's close of 71.47. The Indian unit opened at 71.78 a dollar and touched a low of 71.79, a level last seen on 17 September.
India’s factory output contracted for the second straight month at 4.3% in September, recording its worst show since the present series was launched in April 2012.
Following the weak industrial production numbers, analysts see economic growth slowing to less than 5% in the September quarter. The gross domestic product data for September quarter is due on 29 November.
"We recently lowered our growth forecast to 4.9% y-o-y (from 6% earlier) in FY20 and to 6.1% (from 6.9%) in FY21. We attributed this to the economy presently reeling from a combination of a domestic credit stress due to the ‘triple’ balance sheet problem of corporates, banks and shadow banks, clogged policy transmission and weak global growth. This will likely result in a deeper trough and a prolonged phase of bottoming out of the growth cycle,” said Nomura Research in a note to its investors.
"While headline inflation is likely to rise above 4% in near months, we expect the Reserve Bank of India (RBI) to look through the buildup in food price inflation, and deliver a 25bp of rate cut at its next policy meeting in December, followed by another 25bp rate cut in Q2 2020,” it added.
Government will release the consumer price index-based inflation and wholesale price index-based inflation data for October on Wednesday and Thursday respectively. According to Bloomberg survey, CPI is likely to rise to 4.34% from 3.99% a month ago while WPI is expected to be at -0.22% from 0.33% a month ago.
Government bond yields fell on expectation that the Reserve Bank of India may cut rates further after the slump in factory production. The yield on the 10-year government bond was at 6.546% compared with its previous close of 6.567%.
"The persistent slowdown in industrial growth may force RBI to go for another round of policy rate cut in months. However a possible rise of headline inflation above the medium term target of RBI (4%) may act as a point of caution before RBI does a rate cut,” said Rahul Gupta, head of currency, Emkay Global Financial Services.
In the year so far, the rupee has weakened 2.6%, while foreign investors have bought nearly $11.60 billion in Indian equities and $5.32 billion in debt.
The benchmark equity index Sensex was a tad up at 40370.52 points. Year to date, it has gained 11.86%.
Asian currencies were trading lower after US President Donald Trump said the US will increase tariffs on China if the first step of a broader agreement is not reached.
South Korean won was down 0.58%, Malaysian ringgit 0.24%, China renminbi 0.20%, Indonesian rupiah 0.24%, Philippines peso 0.17%, Taiwan dollar 0.12%, Singapore dollar 0.05%. However, Thai Baht was up 0.08%.
The dollar index, which measures the US currency’s strength against a basket of major currencies, was at 98.333, up marginally from its previous close of 98.309.
(Bloomberg contributed this story)