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The Indian rupee tumbled to an all-time low on Monday, succumbing to the pressure of weakening regional currencies and sustained outflows from local equities. However, traders report that timely intervention by the Reserve Bank of India (RBI) helped to prevent a significant decline in the currency's value. The rupee ended the day at 84.3925, surpassing its previous record low of 84.3875 reached the prior week. Despite the drop, the currency only depreciated by 0.02% on the day.
Dollar demand from oil companies and foreign banks, likely on behalf of custodial clients, contributed significantly to the rupee's weakness. Additionally, overseas investors have pulled out a net of approximately $2.5 billion from Indian stocks during the month of November, adding to the $11 billion outflow observed in October. This combined capital flight has exacerbated downward pressure on the rupee.
Although the benchmark Indian equity indices, the BSE Sensex and Nifty 50, closed nearly flat on the day, the broader trend of capital outflows remains a concern. The rupee's decline mirrors a pattern of weakness observed across Asian currencies. Asian currencies experienced declines ranging from 0.1% to 0.6%, while the dollar index, a gauge of the greenback's strength against a basket of major currencies, rose by 0.3% to reach 105.3. This level places the index near its four-month high, achieved last week after Donald Trump's victory in the U.S. election.
The offshore Chinese yuan, a close peer of the Indian rupee, was down 0.2% at 7.21. This decline follows China's unveiling of a stimulus package on Friday, which disappointed investors who had anticipated a more substantial fiscal push. Analysts expect Trump's policies to exert upward pressure on U.S. inflation and bond yields, while limiting the Federal Reserve's ability to ease monetary policy. These factors are anticipated to further strengthen the dollar against other currencies in the coming months.
ING Bank, in a note, expressed its view that the dollar is poised to strengthen into the year-end. The bank forecasts that the dollar index could consolidate within the range of 104.5-105.5 before experiencing a further rise. Conversely, dollar-rupee forward premiums have declined. The 1-year implied yield has dropped to an over two-month low of 2.10%, driven by strong receiving interest from foreign banks.
Source: Rupee slips to record low of 84.39 vs USD, but avoids sharp losses on RBI's intervention