Indian rupee slumps to lifetime low of 89.66 per dollar and heads towards 90 range amid foreign portfolio outflows, uncertainty over US-India trade deal and RBI’s defence pullback.
The rupee slumped to a lifetime low of 89.66 per dollar on Friday and is heading towards the 90 range amid foreign portfolio outflows, uncertainty over a US-India trade deal and the Reserve Bank of India’s (RBI) defence pullback.
The Indian currency logged its steepest single-day fall in over three months, breaching the 89-per-dollar mark for the first time. It went past its all-time low of 88.80 recorded in late September and earlier this month.
A further weakening is anticipated and the rupee could move to the 90 level if a trade deal with the US is not concluded, traders and analysts said. A reverse movement could take place if a trade deal is struck, they added.
The rupee has depreciated by 4.5% in the year-to-date, lagging behind major currencies this year. This is despite the fundamentals remaining resilient and the stock market hovering near record highs.
Net financial flows have been on the weaker side, withdrawing $16.5 billion from Indian equities so far this year. This has further pressured the rupee to depreciate.
The US imposition of 50% tariffs on Indian goods has also made the rupee struggle. India’s merchandise trade deficit hit a record high last month. Exports to the US have fallen 9% year-on-year.
The RBI had been containing the volatility of the rupee, holding it at the 88.80 levels for a long time. Cumulatively till end August, the central bank had been a net seller of dollars to the tune of $14 billion.
Analysts said the RBI allowed the rupee to trade beyond the 88.80 levels against the dollar. The markets started covering short positions and this led to the currency to depreciate beyond 89 levels on 21 November, they said.
RBI Governor Sanjay Malhotra on Thursday said that the central bank has not set any target for the rupee’s exchange rate against the dollar, stressing that market dynamics should drive currency movements.
Moving into uncharted territory, the rupee is expected to be under pressure to breach the 90 mark. Analysts said the Indian currency would likely move in the 88.80-90 range, with the RBI providing support.
