Indian rupee hits record low of 85.12 against US dollar
The Indian Rupee has hit a record low, plummeting to 85.12 against the US dollar. This is the fifth trading session in a row where the rupee has hit a new record low, beating Friday's previous record of 85.10. The currency ended at 85.1175 for the day. A weak offshore Chinese yuan and strong dollar demand from importers—probably month-end payments—are among the reasons for the depreciation.
RBI's interventions and state-run banks' actions
The RBI has been intervening aggressively to support the rupee amid these challenges. State-run banks have also been seen selling dollars and conducting mid-tenor dollar-rupee buy/sell swaps. These are believed to be on behalf of the RBI, to limit further rupee depreciation. The central bank has also ramped up its forward dollar sales to limit the impact on cash in the banking system, forex reserves from spot market interventions.
Forex reserves at 6-month low, dollar-rupee forward premiums rise
Amit Pabari, Managing Director at CR Forex, observed that India's forex reserves have fallen to a six-month low. This indicates the RBI's prompt actions to avoid the rupee's excessive depreciation. On Monday, dollar-rupee forward premiums increased with the one-year implied yield rising by two basis points to 2.24%, and one-month forward premiums rising to 20 paisa. These were fueled by a spike in the overnight swap rate due to anticipated cash dollar inflows from ongoing initial public offerings (IPOs).
Rupee's performance and future outlook
Despite RBI's early intervention on Friday, the rupee remained under pressure due to several domestic and global factors. These include India's slowing economic growth, a widened merchandise trade deficit, and the US Federal Reserve's projection of fewer rate cuts in 2025 amid persistent inflation. However, Pabari predicts the local unit will hover in the 84.70-85.20 range in the near term.
