The Indian rupee fell to an unrivalled low against the US dollar

The Indian rupee fell into an unparalleled low against the US dollar on Thursday, which was driven by anticipated outflows and racy demand from local importers. This marked a significant decline to 83.6650 against the US dollar in the latter half of the trading session, before settling at 83.6425.

The rupee’s struggle is not isolated but part of a broader trend impacting emerging Asian currencies. A stronger dollar and a weaker Chinese yuan added pressure, with traders highlighting these factors as key contributors to the rupee’s fall. Despite India’s strong economic growth, the rupee has remained around record lows, primarily due to equity outflows and corporate demand for dollars.

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There have been significant dollar inflows into the debt markets, totalling $7.5 billion, ahead of India’s inclusion in the JPMorgan Emerging Market Bond Index, and Foreigners have sold a net of $2.6 billion of local equities this year, which has contributed to the pressure on the Indian rupee.

The central bank has generally kept the rupee within the tight band during dollar outflows, preventing sharp appreciation amid inflows and tempering depreciation. However, On Thursday this support was not there, and it allowed the currency to flow markedly.

The record low won’t be a matter of concern till it is holding above 83.80, Sajal Gupta, executive director and head of forex and commodities at Nuvama Institutional stated in a report. Gupta also said that “it is quite gradual to happen this depreciation further.”

The rupee’s decline was in line with other Asian Currencies, like the offshore Chinese yuan was down 0.1% at 7.28, its weakest level since November 2023. The trend was influenced by the broader strength of the US dollar and rising US bond yields.

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The rupee remains the best-performing currency in Asia this year after the Hong Kong dollar despite the recent record low. The US dollar’s strength on Thursday was primarily on account of the Swiss National Bank’s interest rate cuts which highlights the divergence in monetary policies among global central banks.

(With input from TOI)