The Indian rupee continues its downward spiral hitting a fresh historic low of 90.55 against the US dollar after opening at 90.42 per dollar. With this the currency has declined over 6% in the last 1 year.
Indian Rupee sees fresh record low opening and new historic low at 90.51
The domestic currency’s open was down 0.06% from its previous close of 90.36 against the US dollar. The new historic low of 90.55 against the greenback comes largely in the absence of a trade deal between the US and India, likely persistent dollar purchases by Indian corporates, and constant outflow of foreign equities from the domestic markets. The currency slipped past its yesterday’s low of 90.46 and touched this new low.
4 reasons why the rupee slides to fresh lows
Here is a look at the 4 reasons why the rupee is under constant selling pressure
#1 US-India trade deal uncertainty
One of the biggest factors weighing on rupee is the uncertainty with regards to the US-India trade deal.
The absence of a firm deadline for a trade deal continues to weigh on the currency as both countries wrap up two-day talks for which the US delegation was in India. On Thursday, India’s Prime Minister Narendra Modi said that he and US President Donald Trump spoke on a phone call, progressing bilateral relations between both countries. Modi described the conversation with Trump as “warm and engaging.”
The Indian Prime Minister added that he and the US President “reviewed the progress in our bilateral relations and discussed regional and international developments,” without an explicit reference to the BTA or the punitive US tariff being levied on Indian exports. “India and the US will continue to work together for global peace, stability and prosperity,” Narendra Modi posted on X.
Analysts have warned that delays in the trade deal are likely to weaken the Indian currency further, and it may breach the 91-level mark against the greenback. Kotak Securities sees the currency at 91 per dollar by the end of the month while Nuvama Institutional expects the rupee to fall to 91.50 over the next two-three months.
#2 Aggressive dollar purchases
The dollar’s strength and aggressive dollar buying has kept the pressure on the rupee. “Rupee’s movement was largely fuelled by aggressive dollar purchases from importers. Specifically, surging global prices for precious metals enforced metal importers into rush for dollars, creating immense pressure,” said Dilip Parmer, research analyst, HDFC Securities.
#3 RBI intervention suspected as foreign outflows intensify
It is likely that the RBI intervened yesterday to help avoid steeper losses, forex traders said. Foreign Portfolio Investors sold bonds worth Rs 6,576 crore in the last five trading sessions. Equities have seen outflows of $1.6 billion so far in December. However, the RBI’s intervention has been more of a trickle and limited in terms of quantity and extent.
#4 FII outflows
As per NSE’s provisional data for December 11, foreign institutional investors (FII) were net sellers of shares worth Rs 2,020.94 crore. On the other hand, domestic institutional investors (DII) were net buyers of shares worth Rs 3,796.07 crore. The continuous outflow of foreign continue to add to the downward pressure to the local currency
