The Indian rupee fell by 7 paise to settle at an all-time low of 83.78 versus the US dollar on Thursday, marking a significant event in the foreign exchange market. Foreign money outflows and month-end dollar demand pulled down the Indian rupee. Furthermore, foreign money outflows from Indian stocks after the government raised the capital gains tax rate have been reported by Forex dealers as weighing on the local rupee.

According to analysts, the RBI, which has been providing two-way support to keep the rupee stable, could let it drop a little bit in order to reverse the slightly negative real effective exchange rate and maintain the currency's competitiveness.

The local unit began at 83.72 on the interbank foreign currency market and saw intraday highs of 83.66 and lows of 83.78 versus the dollar during the day. At last, it dropped 7 paise from the previous close to a record closing low of 83.78 versus the US dollar. The rupee finished at 83.71 versus the US dollar on Wednesday.

Anuj Choudhary, a research analyst at Sharekhan by BNP Paribas, stated that the local unit somewhat increased during intraday trading due to the general decline in crude oil prices and rumors of a possible RBI intervention.

The government's move to raise the capital gains tax rate caused forex outflows from Indian stocks, which drove the rupee to all-time lows, according to traders.

Information About Month-End Dollar Demand

The local currency was also affected by month-end dollar demand. The 30-share BSE Sensex declined 109.08 points, or 0.14 percent, to close at 80,039.80 points in the domestic equities market, while the Nifty dipped 7.40 points, or 0.03 percent, to 24,406.10 points. In the meantime, the dollar index, which measures the strength of the US dollar relative to a basket of six other currencies, fell by 0.21 percent to 104.17.

The benchmark for global oil, Brent crude futures, dropped 1.79 percent to USD 81.25 per barrel. According to exchange statistics, foreign institutional investors (FIIs) offloaded shares worth Rs 2,605.49 crore on Thursday, making them net sellers in the capital markets.

Bank of America claims that in order to maintain the rupee's competitiveness and unwind the somewhat real effective exchange rate, the RBI may let it to drop somewhat. It will help the government achieve its goals of drawing in significant investments in manufacturing, according to Anil Kumar Bhansali, Executive Director of Finrex Treasury Advisors LLP and Head of Treasury.