The rupee fell to its lowest ever against the USA dollar on Thursday on the back of weak macro-economic fundamentals, broad dollar strength overnight and declining Asian peers, but mild intervention from the central bank helped stem losses.
Subsequently, the fall in oil prices from $72 to $64 on expectations that the Organization of Petroleum Exporting Countries (OPEC) will increase production gave a breather to the Indian rupee. From witty one-liners to sarcastic tweets, it did not take long for Twitterati to turn the news around.
The major factor which has been dragging the rupee all through this year is the sharp rise in crude oil price.
Emerging markets, including India, have been under pressure in recent months due to higher crude prices, higher global interest rates and renewed geopolitical tensions.
The rupee has shed 7.7% this year, making it the worst performing currency in Asia.
Meanwhile, worries over mounting global trade war fears kept markets across Asia jittery with the MSCI's broadest index of Asia-Pacific shares outside Japan trading 0.7 percent lower. The country's current account and budget deficits are likely to widen this year, fueled by the higher cost of oil imports.
Besides using reserves, economists said the Reserve Bank of India, which hiked rates in May by 25 basis points to mark the first tightening in over four years, could raise rates again.
Globally, US oil prices are on the downtrends from three-and-a-half-year highs. Back then, the central bank, under Rajan, announced a series of measures to stabilise the free falling currency, including imposing temporary capital outflow curbs and incentivising inward remittances such as the FCNR deposit schemes, under which banks mobilised about $20 billion worth of deposits.
India's vulnerability is also underscored by its dependence on imports for oil. Indeed, the US' demand that other nations stop importing crude oil from Iran (on which it has imposed sanctions) has pushed up oil prices.
The latest selloff coincided with a spike in crude oil prices.
The domestic unit plunged to a record low at 69.10 before gaining ground to 68.95 at 1030 hrs, still down by 34 paise. So far in 2018, FIIs have pulled out Rs 46,197 crore from the Indian markets.