The Indian rupee dropped to a new record low on Monday, driven by a mix of regional currency weakness and continued outflows from Indian equities. However, the Reserve Bank of India (RBI) stepped in to prevent sharper declines, traders noted.
The rupee closed at 84.3925, surpassing its previous record low of 84.3875 set last week. On the day, the currency depreciated by 0.02%.
Key Drivers of the Weakness
The demand for dollars from oil companies and foreign banks, likely for custodial clients, kept the rupee under pressure. A salesperson from a foreign bank mentioned that these factors contributed significantly to the currency’s decline.
Overseas investors have pulled out approximately $2.5 billion from Indian stocks in November alone, adding to the $11 billion that left in October. These outflows have weighed on the rupee’s performance.
Pressure from Global Markets
Asian currencies generally weakened by 0.1% to 0.6%, while the U.S. dollar index rose by 0.3% to 105.3, nearing a four-month high. This uptick in the dollar came after Donald Trump’s victory in the U.S. election.
The offshore Chinese yuan also dropped by 0.2% to 7.21, reflecting disappointment after China’s stimulus package fell short of market expectations.
Analysts predict that Trump’s policies may increase U.S. inflation and bond yields, limiting the Federal Reserve’s ability to ease policies in the near future.
Outlook for the Dollar and Rupee
ING Bank forecasts that the dollar will likely strengthen toward the year-end. The bank believes the dollar index could consolidate between 104.5-105.5 before rising further.
Meanwhile, the dollar-rupee forward premiums have fallen. The 1-year implied yield dropped to a two-month low of 2.10%, driven by strong receiving interest from foreign banks.
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