Rupee & that sinking feeling: 2018 was a volatile one for Indian currency

2018 was a volatile one for the rupee, as oil prices started rising and trade war concerns between US and China kept emerging market currencies on tenterhooks. The partially convertible currency started the year at 63.7 a dollar, but trade war tensions, leading to currency war concerns, started pulling it down rapidly in the first half of the year. The central bank tried to defend the currency till its previous record low of 68.85 a dollar. However, once the currency crossed 70, the central bank maintained a hands-off approach to protect its reserves. 

The movement accelerated in August when oil prices also started climbing up to cross $70 a barrel on concerns about US sanctions. It was pretty evident after that that the central bank won’t protect a level. Two back-to-back rate hikes by the RBI by August, seen as a measure to protect the currency, were unable to stabilise the rupee, and by September, it had closed at its life-time low of 74.4 a dollar as oil crossed $85 a barrel. The rupee has now strengthened back to below 72 a dollar, as oil eased to less than $60 a barrel. But observers say that the local currency’s new level would continue to be 70 a dollar-plus.