The rupee has tumbled sharply in the past two weeks because foreign investors have been pulling their funds out of Indian investments in expectation that the coronavirus will cause big problems to the Indian economy. India, as an emerging market is seen as riskier by investors overseas so they are selling the investments in return for cash, and oftentimes the cash they prefer is US dollars.
The coronavirus couldn’t have come at a worse time for India. Even before the virus outbreak, the International Monetary Fund (IMF) substantially downgraded its growth forecasts for India in January to 5.8% citing a slowdown in local demand and deteriorating credit growth.
There is a concern that India could be especially exposed to the coronavirus if it were to take hold because of its dense population and the lack of access to quality health care for many Indians.
USD/INR was higher by 92 pips (+1.23%) to 75.15 with a daily range of 75.37 to 76.32 as of 1pm GMT.
The currency pair had paused at the 75 level late last week but surged to new record highs on Monday above 76. Gains in the exchange rate last week were 2.11%.
Indian rupee tanks after curfew
Indian stocks markets led a slump across global markets following a one-day nationwide curfew on Sunday. A curfew of 1.3 billion people will presumably have been essentially impossible to police and highlights the problem authorities have with such a huge population.
Bank shares led the declines on the Sensex in expectation that the Reserve Bank of India will have to cut rates to protect the economy. Banks face the dual problem for falling lending margins as interest rates go down and the prospect of higher defaults as the economy struggles.
US dollar gains after new Federal Reserve measures
In the United States, the Federal Reserve launched a host new measures to protect the US economy including creidt protection for many areas of society from student loans to credit cards as well as small business loans.