Indian Rupee hits record low over Dollar rally, equity outflows
What's the story
The Indian Rupee hit a historic low today, largely owing to the US Dollar's rally and expected outflows from domestic equities. The INR fell to an all-time low of 84.4125 against USD before settling at 84.3925, the same as its closing number in the previous session. This is the fifth straight session that the currency has hit record lows.
Dollar surge
US election outcome boosts Dollar index
The recent Donald Trump victory in the US presidential election has strengthened the Dollar index, which has risen by 1.8% this month alone. On Tuesday, the Dollar index gained 0.3% to hit a peak of 105.87, its highest since July. The rise came as most Asian currencies fell, adding more pressure on the INR.
Regional comparison
Rupee outperforms regional peers despite challenges
Despite the rising Dollar and outflows from domestic stocks, the INR has managed to outperform most of its regional counterparts in recent sessions. The Yuan and Thai Baht have witnessed declines of 1.2% and 1.6% respectively this month, while the INR's depreciation has been restricted to 0.4%. This resilience is credited to regular interventions by India's central bank.
Market response
RBI's intervention and state-run banks' role
State-run banks were seen selling Dollars today, probably on behalf of the Reserve Bank of India (RBI), traders said. "As the dust settles after last week's US election results, global markets are settling into core trades of a firmer dollar, higher US equities and higher terminal rate from the Fed," ING Bank said in a note.
Investment withdrawal
Overseas investors withdraw from Indian stocks
Foreign investors have pulled out almost $3 billion from Indian stocks this month, on top of October's $11 billion outflow, putting further pressure on the INR. India's top equity indexes, the BSE Sensex and Nifty 50, also fell 1% on Tuesday. This is their fourth straight daily fall, further underlining the woes of the Indian currency.
Reserve impact
RBI's intervention impacts foreign exchange reserves
The RBI's intervention to limit the INR's losses has led to India's foreign exchange reserves falling for five consecutive weeks, hitting a two-month low of $682.13 billion on November 1. While these measures may offer temporary respite, they also put pressure on the country's reserve levels meant to shield it from global uncertainties.