The Indian rupee continues to extend losses on Monday, closing at a new low of 90.73/$ — down 31 paise – due to weak sentiment. This was the third consecutive session of closing at new lows. In fact, the rupee has closed at a new low 8 times in the past month.
According to currency experts, persistent outflows and delay in the trade deal with the US is keeping the market sentiment weak. This has taken the year-to-date (YTD) depreciation in the current financial year to more than 6%, the highest in three years.
Dealers on currency positioning
“Some positioning was also there due to on-going initial public offer (IPO) and the forex swap, which will be held tomorrow,” said a dealer at a public sector bank.
Expressing his worries about the rapid depreciation, he added that the pace of depreciation has to change since there has to be a balance between improving export competitiveness and impact on imports. “Traders are pushing the rupee lower and lower. The Reserve Bank of India (RBI) was expected to step in at 90.50 earlier, but we have already breached it, and there is no sign of settling,” the dealer added.
What do dealers say?
Dealers said that the RBI was present in the market at multiple levels but in a mild way, curbing excess volatility, traders said. With further delay in the trade deal and limited RBI intervention. traders expect the currency to breach 91 soon. The trade deficit data, which was released on Monday, was a slight relief to the market. India’s merchandise trade deficit has decreased to a five-month low of $24.53 billion in November.
“The rupee will keep weakening without sustained capital inflows. There should be some structural reforms to boost the inflows, which is the need of the hour. With 50% tariffs on top of capital outflows, we cannot rule out the rupee sliding to 93 over the next two quarters.
Foreign investors pulled out $1.5 billion from equity in December, according to data from the stock exchange. The debt market has seen an outflow of Rs 8,846 crore, data from Clearing Corporation of India Ltd (CCIL) showed. According to Alok Singh, treasury head – CSB Bank, the rupee’s depreciation will only reverse with either deal announcements or fresh capital market inflows. “If that happens, I see rupee below 90 by March,” he said.