The Indian rupee breached 89 level for the first time, hitting a record low on Friday on account of delay in US-India trade deal. It closed at 89.41, down 70 paise – the biggest single day fall since May 8. Intra-day it hit a low of 89.48.
RBI non-intervention triggers
The Reserve Bank of India (RBI), which has been defending the rupee at the 88.80 levels, also did not intervene on Friday, surprising traders.
“The market was anticipating the RBI to intervene at around the 89 level, but they chose not to step in, signalling its intent to avoid creating speculation about specific intervention levels,” said Anindya Banerjee, head of currency and commodity research at Kotak Securities, adding there is a clear risk-off sentiment weighing on emerging market currencies, including rupee, due to trade uncertainties.
According to Indranil Pan, chief economist, YES bank, once the RBI allowed the dollar/rupee to trade beyond the 88.80 levels, markets started covering short positions and this led to the currency to depreciate beyond 89.00 levels.
A dealer at a foreign bank said that while the RBI did not defend the rupee at the expected 88.80 levels, there are expectations that it will start selling again at around 89.50. However, the apex market may choose to surprise the market like it did in mid-October rather than make it clear that it will defend only at a certain level.
After Friday’s fall, the year-to-date (YTD) depreciation of the currency to 4.62%, highest in three years. In the current month, the rupee fell 64 paise or 0.72%.
The rupee continues to be the worst performing currency among its Asian peers in FY26. This is followed by Japanese yen and Phillipine pesso, falling 4.4% and 2.7%, respectively.
Trade Deal
Speaking at an event in Delhi on Thursday, the RBI Governor Sanjay Malhotra reiterated that they do not target any level for rupee and the recent pressure is due to high demand for dollars. He further said, “we are quite confident there will be a good trade deal going forward, and that should relieve the pressures on our current account.
“With the 90 mark considered to be a major psychological barrier, if the rupee breaks above 90, further weakness may follow. I expect rupee to likely trade within the 89–90 range in the near term, unless external shocks prompt renewed intervention,” added Banerjee.
The currency has been under pressure in the current financial year on worries over trade deal and consistent equity outflows, along with surging gold prices. Market participants said movement of rupee will now depends on the announcement of a trade deal. If it materialises, the rupee will appreciate, they said.
According to Rajeev Pawar, head of treasury, Ujjivan Small Finance Bank, stronger capital inflows following a favorable deal would also support a rebound to sub-89 levels. However, he added that if there are further delays, the rupee may depreciate more quickly and will touch 90 soon. “The RBI would step in as needed to maintain orderly movement, intervening where there is a clear need to ensure stability,” he said.
