The Indian rupee (INR) hit a new record low on Wednesday, breaching the 90-mark against the US dollar for the first time. It opened weaker at 90.14, down 28 paise from Tuesday’s close of 89.86, marking its sixth consecutive day of decline amid strong dollar demand and a stalled India-US trade deal.
The sharp depreciation signals growing investor anxiety and persistent outflows, despite attempts by the Reserve Bank of India (RBI) to stabilise the currency.
The rupee’s downward spiral, which saw it emerge as one of the worst-performing Asian currencies this year, is attributed to a confluence of factors:
Foreign Outflows: Continuous selling by Foreign Portfolio Investors (FPIs) from Indian equity markets, with over $17 billion withdrawn year-to-date, has created sustained pressure.
Trade Deficit & Importer Demand: A record trade deficit, fueled by surging imports, has increased the demand for dollars from importers, further weakening the rupee.
Trade Deal Uncertainty: The persistent delay in finalising the US-India trade deal is a major drag on market sentiment, limiting foreign inflows and optimism.
The Reserve Bank of India was seen actively intervening, reportedly selling dollars through state-run banks to stem the decline and prevent the currency from breaching the key 90 level decisively. Despite the RBI’s efforts, the rupee’s weakness persisted.
Market analysts believe the fundamental pressures on the currency may necessitate further depreciation.
Kunal Sodhani, Head of Treasury at Shinhan Bank, stated, “I do expect some resistance from RBI before the currency breaches 90/$1, but no one can time that.”
Similarly, analysts at MUFG noted that while the RBI will actively intervene, the fundamentals imply pressure for the INR to eventually weaken past 90 over time.
Ritesh Bhansali, Deputy Chief Executive of Mecklai Financial Services, commented that the RBI’s intervention was “mild and did not reverse the weak trend, it just halted the depreciation.”
The consistent decline poses a major headache for importers as it makes foreign goods and services, including crude oil, more expensive, potentially fueling domestic inflation. Exporters, however, may see a temporary boost in competitiveness from the weaker currency.