The Indian rupee fell to a record low of $84.42 against the US dollar on Tuesday on sustained demand for the dollar from foreign banks and importers. The rate of decline exceeded the all-time low of 84.4125 set last week. It ultimately closed at $84.4150, a small loss for the day.
Pressure from domestic oil companies and importers for dollars was the main factor behind the rupee depreciation. Furthermore, demand for dollars from foreign banks also accelerated its decline. Despite the sharp decline, the intervention of the Reserve Bank of India (RBI) helped contain further losses as state-run banks were seen intermittently supplying dollars to the market.
World currency trends
The broader market backdrop also weighed on the rupee. The dollar index, which measures the strength of the US currency against a basket of major currencies, rose 0.2% to 106.4, putting pressure on emerging market currencies. Some Asian currencies, such as the Malaysian ringgit, rose, while others, such as the offshore Chinese yuan, fell during trading.
Traders pointed out that the RBI’s consistent presence in the market has limited the volatility of the rupee. However, the currency remains under pressure due to a combination of strong dollar demand and global factors such as rising US interest rates and weak risk sentiment.
Further dollar weakness may depend on the balance between dollar demand and supply and the Reserve Bank of India’s willingness to intervene in the foreign exchange market. For now, market participants expect the rupee to trade near its current lows, and interventions are likely to limit any significant decline.
