The rupee on Monday opened 17 paise down at 74.08 against the US dollar after the Federal Reserve cut interest rates to near zero per cent in an emergency move amid the economic impact of the coronavirus outbreak for the second time in less than two weeks on Sunday, reducing to a target range of 0-0.25 per cent.
The US Fed reported that it would expand its balance sheet by at least $700 billion in coming weeks. Along the lines of Fed, five other central banks also cut pricing on their swap lines to make it easier to provide dollars to their financial institutions facing stress in credit markets. Bank of Canada, European Central Bank, Bank of England, Bank of Japan and Swiss National Bank set up swap lines in the financial crisis.
“It looks like a shot in the arm for risk assets and help to address liquidity concerns. However, it also raises the question of whether the Fed has anything left in the tank should the spread of the virus not be contained. EUR/USD suffered its worst weekly loss since the Trump election at -2.07 per cent,” said Motilal Oswal Financial Services.
Euro has been highly volatile, at times benefiting from financial mayhem caused by the pandemic and more recently succumbing to the overtures of a strengthening Dollar. Extreme volatility, VAR limits being hit and the sharp changes in collateral valuations are all contributing to large shifts in positioning.
There have been no major updates from the RBI. However, the central bank said that it will take all necessary measures to ensure that the effects of the Covid-19 pandemic on the domestic economy are mitigated, and financial markets and institutions in India continue to function normally.
Global markets are witnessing the carnage as Wall Street marked the worst day since 1987 and the US equity futures are also in the sea of red by the press time.
Meanwhile, data from China showed that China’s industrial output contracted at the sharpest pace in 30 years in the first two months of the year as the fast-spreading coronavirus and strict containment measures severely disrupted the world’s second-largest economy.