The rupee has fallen below the 83 per US dollar mark for the first time and risks prevail for a further weakening of the Indian currency.

A surge in US bond yields sparked a rush for dollars in the forex markets. There was also strong dollar demand from fuel companies and the Reserve Bank of India (RBI) did not intervene aggressively to protect the falling rupee.

Dollar demand from state-run banks and custodian banks on behalf of foreign portfolio investors (FPIs) put the rupee under pressure, some analysts said. Provisional data showed FPIs made net sales of Rs 454 crore in Wednesday’s trading at the stock markets.

The rupee sank 66 paise to close at a record low of 83.02 against the greenback. The Indian currency was down 0.8% from its previous close of 82.36.

The rupee’s previous record low closing was 82.36 per dollar. The domestic currency has depreciated almost 12% against the greenback in this calendar year.

“Flurry of buy orders from inter-bank dealers and speculators due to massive short covering pushed the market higher. It seems the central bank was not that visibly active and that caused prices to rise sharply,” Anindya Banerjee, VP, currency derivatives and interest rate derivatives, at Kotak Securities said.

“Global cues were dollar positive as risk-off sentiments, strong dollar index, weak Asian currencies and surging US bond yields all coupled to push the dollar higher. Over the near term, we expect the dollar to trade with a positive bias, within a range of 82.70 and 83.50 levels,’’ Banerjee added.

Facing headwinds like aggressive rate hikes by the US Federal Reserve and a widening current account deficit, the rupee has been sliding against the dollar.  The falling rupee hit record lows and sank below the 82-mark for the first time on 7 October. It has moved within a range of 82.03 to 82.43 against the dollar since 11 October.

With the forex reserves depleting by about $100 billion since the war in Ukraine started, the RBI has been reluctant to aggressively intervene in the market. 

The fundamentals allow for a currency depreciation. India’s current account deficit is expected to rise to around 3% in FY23 from 1.2% last year. India’s inflation has also stayed elevated.

The central bank’s reaction to the falling rupee will be closely watched by the market. The common sentiment is that the value of the rupee would largely depend on the strength of the dollar and the yields on US treasuries. 

Rahul Kalantri, VP Commodities, Mehta Equities, said that the drastic fall in the rupee to below the 83-mark coincided with the US bond yields rising by 1.5% on Wednesday, which resulted in most of the Asian currencies getting weaker. The offshore Chinese yuan weakened 7.23 per dollar, sliding back toward record lows.

“We expect that the rupee might show some more weakness in coming days. We may see the Indian currency slipping to the 84 mark per dollar very soon’’, he cautioned.