The rupee continued to slide, hitting an all-time low of 85.1975 per USD in intraday trading on Tuesday, under pressure from US dollar (USD) strength and a weak offshore Chinese yuan.
Currently the rupee is trading at 85.1775/USD. The Indian unit on Monday tested an intraday low of 85.12/USD before closing at a new record low of 85.1175/USD, about 10 paise lower than its previous close of 85.015.
Amit Pabari, MD, CR Forex Advisors, said that amid changing economic forces, the rupee finds itself caught between global pressures and domestic uncertainties.
“The incredible strength of the US dollar, boosted by the Federal Reserve’s tight monetary stance, has been a major driver behind the rupee’s struggle. A sharp decline in the offshore Chinese yuan and strong month-end demand for the US dollar from importers added to the pressure.
“Domestically, a widening trade deficit and slow economic growth are putting further pressure on the currency, while outflows from equity markets have added to the challenge,” he said.
Pabari said that in this volatile backdrop, the RBI is believed to have intervened in the foreign exchange market to prevent excessive depreciation of the rupee. By selling dollars in the foreign exchange market, the central bank aims to stabilize the movement of the rupee.
However, this comes at a cost, as India’s foreign exchange reserves are continuously depleting. According to the latest RBI data, reserves, which had peaked at $704.89 billion in September, have fallen to $654.857 billion.