Indian Rupee Hits Record Lifetime Intra-Day Low

New Delhi: On Friday, the Indian rupee reached a record lifetime intra-day low of 85.80 for the ninth consecutive day. This decline prompted a possible intervention by the central bank, which aided in recovering some of its losses. Eventually, the rupee settled at a provisional value of 85.50 against the US dollar, marking a drop of 23 paise. The current month-end demand for dollars contributed to this decline. So far this year, the rupee has seen a depreciation of approximately 3 percent against the US dollar, positioning it to register annual losses for the seventh straight year. If this trend continues, the rupee may end this month with its worst performance in two years.

Experts point out that the local currency's significant drop can be attributed to the strong demand for dollars, especially linked to the expiry of the December currency futures and month-end requirements from importers. In addition, heavy dollar demand in the non-deliverable forwards (NDF) market has put further pressure on the rupee. Analysts note that the liquidity of dollars in the market remains low, which increases the strength of the dollar against the rupee.

Throughout the year, the rupee's overall decline stands at about 3 percent against the dollar. According to Anil Kumar Bhansali, head of treasury at Finrex Treasury Advisors LLP, the rupee's fall to a new low is driven by dollar purchasing related to the December currency futures expiry and month-end dollar demand. "This is compounded by the maturing NDF positions," he remarked.

The Reserve Bank of India's (RBI) decision to maintain its dollar payments in short-term forward contracts has added to the dollar's scarcity, as importers seek to meet their payment obligations at the month's end. Despite favorable sentiment within domestic equity markets, the rupee struggles in the face of continuous foreign fund outflows and rising crude oil prices.

During interbank foreign exchange trading, the rupee opened at a weak 85.31 and fell 53 paise to hit its all-time low of 85.80. It later recovered slightly to close at 85.50, down 23 paise from its previous close of 85.27. Earlier this year, the rupee had its sharpest single-day decline on February 2, 2023, where it fell by 68 paise.

The domestic currency has been consistently falling to new lows for the past couple of weeks. On Thursday, it declined by 12 paise to end at 85.27 against the dollar, following a 13 paise drop over the previous two sessions. Market speculation indicates that the RBI holds $21 billion in short-side forward contracts maturing in December and January but has not rolled over these forwards, contributing to the dollar shortage and excessive rupee supply.

Analyst Anuj Choudhary from Mirae Asset Sharekhan noted that the rupee's all-time low can also be attributed to dollar demand from importers towards the end of the month and foreign investor outflows. Rising US Treasury yields and crude oil prices have further pressured the rupee. He forecasts that the USD-INR spot price might fluctuate between Rs 85.30 to Rs 85.85, with traders likely looking to the US goods trade balance data for guidance.

In parallel, the dollar index, which measures the dollar's strength against several currencies, was trading up by 0.04 percent at 107.94. The 10-year benchmark US Treasury yield has risen to 4.61 percent, its highest in seven months, gaining 0.76 percent. Meanwhile, Brent crude rose by 0.15 percent to $73.37 per barrel in futures trading. In contrast, the domestic equity market witnessed the 30-share BSE Sensex gain 226.59 points or 0.29 percent, settling at 78,699.07 points, while the Nifty rose by 63.20 points or 0.27 percent to close at 23,813.40 points. Notably, foreign institutional investors (FIIs) were net sellers in the capital markets on Thursday, offloading shares worth ₹2,376.67 crore, according to exchange data.

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