Rupee drops by 6 paise to 73.02 on fiscal deficit concerns, strong dollar

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Mumbai, Feb 1 (PTI) The rupee depreciated by 6 paise to close at 73.02 against the US dollar on Monday due to fiscal concerns after the government projected a higher fiscal deficit for 2020-21 and increased borrowing in the budget presented by Finance Minister Nirmala Sitharaman.

A stronger dollar in overseas markets and firm oil prices also weighed on the rupee sentiment. A strong rally in equity markets, however, limited the rupee losses.

At the interbank forex market, the domestic unit opened at 72.89 against the US dollar and witnessed an intra-day high of 72.84 and a low of 73.15.

The local unit finally settled at 73.02, registering a fall of 6 paise over its previous close, even as the domestic equity market settled with significant gains on the Budget day. On Friday, the rupee had closed at 72.96 against the American currency.

'The Indian Rupee depreciated against the US currency on Monday as the government's higher-than-expected fiscal deficit and speculations that it would impact India's rating,' said Sriram Iyer, Senior Research Analyst at Reliance Securities.

'Indian rupee depreciated amid strong Dollar. Dollar gained strength as demand for safe haven increased on fear over delay in economic recovery due to rising COVID-19 cases across globe, emergence of new COVID-19 strains and problems with vaccine rollouts,' said Saif Mukadam, Research Analyst, Sharekhan by BNP Paribas.

The dollar index, which gauges the greenback's strength against a basket of six currencies, rose 0.21 per cent to 90.78. Brent crude futures, the global oil benchmark, advanced 0.84 per cent to USD 55.50 per barrel.

Analysts said that traders remained cautious ahead of Reserve Bank of India (RBI) monetary policy scheduled on Friday.

'Rupee may trade in the range of 72.75 to 73.50 in next couple of sessions ,' Mukadam said.

Meanwhile, the benchmark BSE Sensex ended 5 per cent higher, recovering all of last week's losses this Monday and capped weakness of the domestic unit. The BSE Sensex ended 2,314.84 points higher at 48,600.61 while the broader NSE Nifty advanced 646.60 points or 4.74 per cent to 14,281.20.

Foreign institutional investors were net sellers in the capital market as they offloaded shares worth Rs 5,930.66 crore on Friday, according to exchange data.

According to Devarsh Vakil, Deputy Head of Retail Research, 'Indian rupee made U-turn after FM announced higher than expected fiscal deficit in the union budget'.

Vakil further noted that strong flows in the equity markets suggest rupee will consolidate in the range of 72.70 to 73.50 ahead of the RBI policy meet scheduled on February 5. 'The bias for local currency remains bullish,' he noted.

Sitharaman on Monday said the government estimates fiscal deficit of 6.8 per cent of the GDP in the next financial year beginning April 1.

Fiscal deficit is an indication of the government's borrowing to meet the shortfall between expenditure and receipts from taxes and other sources.

The fiscal deficit in 2020-21 is estimated to soar up to 9.5 per cent due to rise in expenditure on account of the outbreak of COVID-19 and moderation in revenue during this fiscal year.

The lockdown to check the spread of virus adversely impacted the economic activities resulting in contraction in the economy by an estimated 7.7 per cent.

For the current fiscal year, the government had earlier pegged the fiscal deficit of 3.5 per cent.

While unveiling the Budget for 2021-22 in the Lok Sabha, the Finance Minister said the government proposes to bring down the fiscal deficit below 4.5 per cent of GDP by 2025-26. PTI DRR ABM MR