Why Indian Rupee has slipped to all-time low against Dollar
The Indian Rupee hit a historic low today, closing at 84.3925 against the US Dollar, breaching its previous record of 84.3875 last week. The depreciation was largely attributed to the weakness in regional currencies and persistent outflows from domestic equities. However, the Reserve Bank of India's (RBI) intervention prevented major losses, traders said. "Dollar demand from oil companies and foreign banks, likely on behalf of custodial clients, kept the rupee under pressure," said a salesperson at a foreign bank.
RBI's intervention and foreign investment outflows
Reportedly, the RBI employed state-run banks to sell Dollars on Monday, in a bid to contain the INR's depreciation. The move comes amid a massive exodus of foreign investments from Indian stocks, with overseas investors withdrawing around $2.5 billion till now in November. This adds to the $11 billion of outflows seen in October, further putting pressure on the INR's value against other currencies.
Asian currencies falter as dollar index rises
Asian currencies also took a hit, falling between 0.1% to 0.6%, while the dollar index gained 0.3% to 105.3. The increase brings it near a four-month high reached last week after Donald Trump's victory in the US election. The Yuan, which is often compared with the INR, also depreciated by 0.2% at 7.21 after China's stimulus package disappointed investors last Friday.
ING Bank predicts dollar strength, India's forex reserves dip
ING Bank expects the USD to strengthen toward the year-end, possibly consolidating in the 104.5-105.5 range before climbing higher. Meanwhile, India's foreign exchange reserves have been declining for five weeks straight, hitting a two-month low of $682.13 billion on November 1. RBI's interventions to prop up the INR are putting a strain on India's reserves, which are meant to cushion against global uncertainties.
Market experts forecast continued rupee weakness
Market experts believe the INR could remain under pressure until the dollar index changes or FII outflows slow down. "The rupee is likely to remain under pressure unless there is a softening in the dollar index or a slowdown in FII outflows," Amit Pabari, Managing Director at CR Forex, told Reuters.
